Daily Economic Update
U.S. payrolls rise 110,000 in September with the previous two months revised up a cumulative 118,000
September U.S. payrolls rose 110,000, slightly above market expectations of a 100,000 rise. More unexpected were the substantial upward revisions to the previous two months of a cumulative 118,000. The revision in August was particularly pronounced with the originally reported drop of 4,000 being revised to now show a solid increase of 89,000. The report also indicated that the unemployment rate rose to 4.7% from 4.6% in August, although this reflected a much larger jump in individuals entering into the labour force than those who found jobs. The rise in the unemployment rate did not prevent wages rising a greater-than-expected 0.4% in the month. This sent the year-over-year rate up to 4.1%.
The strength in jobs continues to be skewed towards services-producing jobs, which rose 143,000 in the month. The increase was led by increase of 37,000 and 35,000 in the government and leisure/hospitality components, respectively. In contrast, goods-producing jobs fell 33,000, with manufacturing employment down 18,000 and construction employment off 14,000. The workweek was unchanged both for the overall economy at 33.8 hours and within manufacturing at 41.4 hours.
A key near-term risk to the U.S. expansion is if the weakness in housing spreads to other areas of the economy such as consumption, prompted, in part, by weakening job growth. The solid gain in September payrolls along with the marked upward revisions to the August and July numbers reported this morning will go a long way to easing these concerns. However, despite today's encouraging numbers, the Fed is expected to remain cautious because the recent housing data continue to show signs of marked weakness and some pressures from the recent financial market volatility persist. In fact, we are assuming that the Fed will cut Fed funds another 25 basis points before the end of the year as insurance against these problems undermining the overall economy.
Canada's jobless rate dips to lowest level since 1974
Canadian employment jumped by 51,100 in September, smashing through expectations for a more modest 17,500 gain and more than double the solid 23,300 increase in August. The unemployment rate ticked down to 5.9%, breaking through 6% for the first time since November 1974. The average hourly wage rate for permanent workers (the Bank of Canada's favoured measure) rose 0.2% and was 4.1% higher than in September 2006, the fastest pace of increase since May 2001.
The gain in employment was led by full-time jobs, which increased by 32,500, while part-time jobs rose by 18,700. Year-to-date full-time employment is up 226,000, with part-time employment up by a more modest 56,700.
All the gains in September were in the public sector where employment jumped by 59,000, building on August's strong increase. Most of the increase was in education and public administration, with 30,000 jobs created in Ontario. This was the first significant rise in employment in the province and was boosted by hiring for the upcoming provincial election.
Gains were concentrated in the services-producing sector; goods-producers cut 9,500 jobs in September. Construction employment fell 8,400 and the manufacturing industry shed another 3,200, for a total of 71,300 job losses in the industry in the 12-month period. Services-producing jobs increased by a whopping 60,700, despite a sharp 28,300 loss in retail and wholesale trade and a 15,100 decline in health care and social assistance jobs. Educational services jobs rose for the second month running and were up 24,800.
Canada's job market rounded out the third quarter on solid footing having created 85,700 new jobs in the three-month period, a pick-up from the more moderate pace in the April through June period. The data confirm that Canada's economy is negotiating well through the bout of global market volatility.
The combination of growing employment rolls and accelerating wage growth will be strong supports for consumer spending and will likely keep Canada's domestic economy powering on even as the trade sector weighs on the pace of growth.
For monetary policy, this report feeds into the Bank's concern that “household demand in Canada could be stronger than anticipated” and argues against the Bank lowering the overnight rate at its October 16 rate setting.
By: RBC Financial GroupSharp Gains in Non-Farm Payrolls Sends US Dollar Higher
Change in Non-Farm Payrolls: 110k Actual, 89k Previous (revised)
Unemployment Rate: 4.7% Actual, 4.6% Previous
Change in Manufacturing Payrolls: -18k Actual, -45k Previous (revised)
Average Hourly Earnings: 4.1% Actual, 3.9% Previous
Average Weekly Hours: 33.8 Actual, 33.8 Previous
After dropping for the first time in 4 years, non-farm payrolls rebounded significantly in month of September. Not only did US companies add 110k jobs last month, but the August number was revised up from -4k to 89k. The tables have turned significantly with this release because it means that the US economy did not actually lose jobs the prior month. There was also a big jump in average hourly earnings from 3.9 to 4.1 percent. Unfortunately, the number was not entirely dollar bullish with the payrolls in the year ended March potentially revised down by 297,000. The market is downplaying this revision because it is focused on the forward outlook for the US economy. This payrolls number eradicates the risk of a recession and puts the possibility of a Fed rate cut at the end of this month at only 50-50. Fed fund futures are now only pricing in one interest rate cut by the end of the year. This expectation will continue to drive the EUR/USD lower and USD/JPY higher.
