US: Discouraging Payrolls, but taper prospects remain intact – UOB

Suan Teck Kin, CFA, at UOB Group’s Global Economics & Markets Research comments on last Friday’s release of the US labour market report for the month of September.

Key Takeaways

“After the big miss in the Aug nonfarm payrolls (NFP), the pace of job creation in the US disappointed yet again. NFP increased 194,000 in Sep – the smallest advance this year – well below expectations of 450,000 and slower than the upwardly revised 366,000 gain in Aug. Cumulatively, nonfarm employment has increased by 17.4 million since the trough in April 2020, but is still down by 5.0 million, or 3.3%, from its pre-pandemic level in Feb 2020. Nonetheless, the US Labor Department’s employment situation report (8 Oct) shows that the unemployment rate improved to 4.8%, 0.4% point lower than 5.2% in Aug, and is at the lowest since the pandemic began.”

“Of the 194,000 increase in NFP, the private sector contributed 317,000 jobs (Aug: 332,000) which was offset by public sector job losses of 123,000, a reversal from an increase of 34,000 in Aug.”

“Despite another disappointing headline NFP, the US labor market continues to make steady progress to recover from the depth of job losses. At about 5 million jobs short of the pre-pandemic level, it is a vast improvement compared to the 22 million job losses at the worst point of the pandemic. In addition, job creation in the private sector remains the main driving force in the US labor market, with the creation of more than 17 million jobs since the recovery started in May 2020, vs. the cumulative addition of 670,000 government jobs.”

“As such, we believe that the Fed would not be deterred by the latest job report and will proceed with the tapering of its bond buying program at the 2/3 Nov FOMC and completing in 8 months by Jul 2022, as outlined in our report on the Sep FOMC. This will be followed by the first Fed rate increase of 25bps starting from Dec 2022, and then another 2 more 25bps hikes in 2023.”