Job Creation Surges; Rate Hike Back on Table

It’s never as good or as bad as you think. For the past few months, there has been a chorus of downbeat chants that the U.S. economy is headed for a downturn and that the job market was the leading indicator of the coming storm. The Cassandra’s cited the weak job creation numbers in August (+153,000) and September (+137,000), a sizable pullback in manufacturing and the much-feared hard landing in China. These doubters said that the Fed would have to wait at least until March 2016 to raise rates, in order to determine whether the slowdown was temporary or longer lasting. All of that changed when the government released the October employment report. The labor market bounced back in October, adding 271,000 jobs. It was the best pace of hiring this year and well ahead of the consensus estimate for 180,000. With this report, the three-month average increased by 20,000 a month to 187,000 and the 12-month average stands at 230,000.

The unemployment rate edged down to 5 percent, the lowest level since April 2008 and the broader measure of unemployment, which includes those who have stopped looking as well as those working part-time for economic reasons, edged down to 9.8 percent. While that’s still a hefty number, it is the first time that it's been below 10 percent since May 2008. And average hourly earnings increased by 2.5 percent from a year ago, the fastest year-over-year pace since 2009. If maintained, the extra money could potentially help consumers feel more economically secure and spend more freely.

Before you start the celebration, there is no doubt that the jobs market is not a-ok for everyone. Manufacturing has slowed down, due to plunging energy prices, weakness in China and the emerging markets and a strengthening U.S. dollar. One manufacturing executive based in MN, told me that the sector was in “a second recession.” Indeed, various indicators show that output, although still barely positive, is at the weakest pace since 2009. But there are signs of improvement on the horizon: there has been evidence of a near-term bottoming of Chinese (the Shanghai Composite has gained more than 20 percent since its low in late August) and other emerging economies and commodity prices have stabilized.

In fact, the firming global situation, along with the stronger than expected jobs report, now puts a December Fed rate hike back on the table. Just two weeks ago, the futures markets saw only a 30 percent chance of a December lift-off. A day before the jobs report, that number was over 50 percent and moments after the BLS release, it jumped to over 70 percent.

But as a reminder, the month-to-month numbers can change on a dime and it is really never as bad or good as you think…although the economy appears to be firming, sentiment could quickly sour again. For now, enjoy the good news.

MARKETS:

• DJIA: 17,910 up 1.4% on week, up 0.5% YTD (6th consecutive weekly gain, up nearly 10% during that period…largest six-week gain since 2012)
• S&P 500: 2,099 up 1% on week, up 2% YTD
• NASDAQ: 5,147 up 1.9% on week, up 8.7% YTD
• Russell 2000: 1200, up 3.2% on week, down 0.4% YTD
• 10-Year Treasury yield: 2.32% (from 2.09%)
• December Crude: $44.29, down 5% on week
• December Gold: $1,087.70, down 4.7% on week
• AAA Nat'l avg. for gallon of reg. gas: $2.22 (from $2.18 wk ago, $2.95 a year ago)

THE WEEK AHEAD:

Mon 11/9:

Tues 11/10:

6:00 NFIB Small Business Optimism

Weds 11/11:

Thurs 11/12:

10:00 Job Openings and Labor Turnover Survey (JOLTS)

Fri 11/13:

8:30 PPI

8:30 Retail Sales

10:00 Consumer Sentiment