According to the latest US Labor Department report, non-farm payrolls surged in the month of October. The last jobs report before the US election, the survey showed an increase of 171,000 workers, better than the expected gain of 125,000. Although bullish for the world’s largest economy, there are some concerns that the surge may be a one off event. Let’s take a look at why.
Chart from the Non Farm payrolls event page in FXstreet.com
At first glance, the six digit increase in October is a great sign of US labor market recovery. For October, US companies added to September’s revised 148,000 gain. This makes the latest release the third 6-figure increase in the last 4 months. However, a good majority of the increase was attributed to retail stores gearing up for the holiday season. This isn’t too far from reality as seasonal hiring has always propped up employment numbers towards year’s end . The notion has surfaced in three of the last four years. This year, retailers added 36,400 positions while the broader services sector added 163,000. Ultimately, the support for these labor additions will be tested once the holiday season is behind us. But for now, the count doesn’t show enough of a broad based employment recovery to be thrilled about.
And then there’s the unemployment rate.
NFPs In October
For the month of October, the unemployment rate actually ticked higher to 7.9%. The increase is a simple fact of more people entering the labor market rather than leaving it. And, it confirms earlier speculation that recent declines in the rate were reflective of discouraged workers leaving the labor market. Given the structural change in the economy and how pre-financial crisis jobs are no longer available, the recent gain in the unemployment rate is an indication that there are plenty more people in the US still looking for work. Not a good sign when over 60% of the economy’s growth comes from consumption. This longer term unemployment theme places today’s results in a cautionary light and will continue to weigh on future releases in the near term.
So, although there is plenty to be bullish about in the short term, today’s US employment report may not be the silver lining that some traders were looking for. Ultimately, it will take 6-figured employment growth, a broader based hiring scheme and a substantial decline in the national unemployment rate to really turn bearish labor market sentiment around for the better. The sentiment will continue to weigh on currencies like the Australian dollar and Euro, both higher yielding when compared to the greenback.