After a week of gloomy data expectations for the non-farm payroll were low heading into the reading. However, we all know the report’s ability to surprise and this month’s labour department jobs report headline figure did just that by being was pretty much bang on expectation. 136,000 jobs were created in September, marginally below the 145,000 expected.

Whilst headline jobs were a solid 136k, average earnings erred on the disappointing side increasing just 2.9% year on year, below the 3.2% expected and unchanged from the previous month. Finally, the unemployment rate stole the show diving to 3.5%, well below the 3.7% forecast and the lowest level since 1969.

Data across the weak has pointed to the US economy slowing and this report is supportive of that key theme in that the rate of jobs growth is clearly slowing to previous years. However, in relation to the manufacturing and service sector reports which surprised heavily to the downside, the NFP had some bright spots which is calming fears in the markets.
As a result, following the release risk appetite has increased with US futures paring earlier losses and trending higher. The dollar also reversed earlier losses versus a basket of currencies and has moved into positive territory, whilst safe haven gold is in the red.

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Rate cut in October?

The market is still pricing in an 80% probability that the Fed will cut interest rates in October, with a 50 / 50 chance of another rate cut in December. The Fed has not indicated that it will cut rates again this month. Given the OK NFP, Jay Powell & Co may well stay pat and watch data for another month. With this in mind the dollar could climb higher.

Areas of concern

Whilst the report looks good compared to the car crash that some were expecting, there are still some areas to concern. The fact that unemployment has dropped so sharply yet wages remain steady implies that there is still an element of uncertainty hanging over the economy and which is preventing wages from rising. This cloud of uncertainty no doubt stems from the ongoing US – Chins trade dispute and slowing global growth. Neither of which are going anyway anytime soon.

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