U.S. labour market report mixed – Nordea

Morten Lund, an analyst at Nordea Markets, notes that the U.S. Nonfarm payrolls rose by 136k in September, underperforming consensus expectations, and suggests that overall, the report was a mixed bag.

• “Nonfarm payrolls increased by 136k in September after a decent (revised) number of 168k in August. The 3-month average payroll number decreased from 171k to 157k, while the 12-month average, on the other hand, rose slightly from 177k to 179k.
• Despite the somewhat weak headline number, both the U-3 unemployment rate and the broad U-6 unemployment rate decreased to respectively 3.5% and 6.9% due to less strong labour supply.
• The wage component disappointed with no monthly increase (consensus 0.2% m/m), corresponding to 2.9 y/y (August: 3.2%). Hence, recent momentum (as measured by the 3-month chg. AR) came down from the otherwise strongest level post the financial crisis. At the surface, this suggests less inflation pressure ahead, but we are not fully convinced by this single print. Thus, other labour market indicators still point at higher core inflation in the coming months.
• Given the mixed signals, today’s job report does not in itself give a clear signal, whether the Fed will cut or not in October. However, both the very weak ISM manufacturing number and the sharp drop in the ISM non-manufacturing index released earlier this week clearly added more fuel to the very dovish fire burning under the Fed. Markets are currently pricing in around 75% probability of a rate cut at the October meeting.”