US Jobs Report Validates Short-term Interest Rates

US Jobs Report Validates Short-term Interest Rates

US Jobs Report Validates Short-term Interest Rates

$DIA, $SPY, $QQQ, $VXX

The monthly US jobs report for November was released early Friday, and it was not so bad that the FOMC will upset market expectations and not hike interest rates in mid-December.

The data validated what fixed-income markets have already priced in when it comes to short-term interest rates.

The report contained insights that shed some light on the subsequent path of policy interest rates.

  • NFPs: Actual 178-K, consensus 180-K, October 142-K revised down from 161-K, September revised up to 208-K from 191-K
  • Nonfarm private payrolls: Actual 156-K, consensus 170-K, October 135-K revised down from 142-K
  • Hourly earnings: Actual -0.1%, consensus 0.2%, Prior 0.4%
  • Unemployment rate: Actual 4.6%, consensus 4.9%, Prior 4.9%
  • Average workweek: Actual 34.4, consensus 34.4, Prior 34.4

Since the FOMC last met in November, the balance of risks to the US economy shifted to the Northside, for both growth and inflation, accompanied by signs of further strength in the labor market, which is getting a lot closer to “full employment,” and from stock markets that are trading at record highs. Plus, the economic and financial headwinds from abroad have abated somewhat

US markets have taken the probability of a December fed funds rate hike as a certainty, despite the cloud associated with the 4 December Italian referendum. Indeed, the November NFPs would have to have been awful to dissuade the Fed from hiking in this month.

“By awful I mean some combination of low monthly job creation (50,000 or less), large downward revisions to the employment data of previous months, a deceleration in annual wage growth to below 2%, and a participation rate that, by increasing by 0.3% or more, signals significant remaining slack in the labor market.” said economist Mohamed El-Erian

That combination was unlikely given the information about the economy from other recently released indicators, including this week’s data on consumer sentiment, Q-3 GDP, the Chicago Purchasing Managers’ Index (PMI) and the ADP numbers.

The jobs report validated expectations that the Fed will move on rates this month. This does not mean that the monthly jobs report has lost its ability to influence policy and market prices.

Despite the recent widening in yields, markets continue to expect a path of higher rates that is slower than the pace implied by the Fed’s “blue dots,” which represent the expectations of individual members of the FOMC.

Whether convergence occurs will be determined by inflationary expectations, and these will be heavily influenced by the tightness of the labor market when it comes to wage growth.

So, for now, some of the anticipation was taken from the Jobs data release this Friday. But, remember the employment report is important input for assessing future US monetary policy.

Friday, the major US stock market indexes finished at: DJIA -21.51 at 19170.42, NAS Comp +4.55 at 5255.65, S&P 500 +0.87 at 2191.95

Volume: Trade was moderate with about 882-M/shares exchanged on the NYSE.

  • Russell 2000 +15.7% YTD
  • DJIA +10.0% YTD
  • S&P 500 +7.2% YTD
  • NAS Comp +5.0% YTD
HeffX-LTN Analysis for DIA: Overall Short Intermediate Long
Bullish (0.43) Neutral (0.21) Very Bullish (0.60) Bullish (0.47)
HeffX-LTN Analysis for SPY: Overall Short Intermediate Long
Neutral (0.21) Neutral (0.15) Bullish (0.29) Neutral (0.19)
HeffX-LTN Analysis for QQQ: Overall Short Intermediate Long
Neutral (-0.05) Neutral (-0.16) Neutral (-0.04) Neutral (0.06)
HeffX-LTN Analysis for VXX: Overall Short Intermediate Long
Neutral (-0.23) Neutral (-0.08) Bearish (-0.29) Bearish (-0.33)

Have a terrific weekend.

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Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

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