It is the first Friday of the month and the day for the always important government employment report. In a nutshell, the news is good and indicative of moderate growth in labor conditions.
Headline numbers consisted of non-farm payroll growth of 203k jobs (+185k expected) and a drop in the unemployment rate from 7.3% to 7.0% (7.2% expected).
Looking under the hood, payroll growth occurred in several favorable areas such as professional and business services (+35k jobs), transportation and warehousing (+31k), healthcare (+28k), and manufacturing (+27k).
Retail also had a nice gain (+20k). The unemployment rate looks favorable when also considering an increase in the number of available workers and a decline in another measurement of unemployment that includes underemployed and discouraged workers that fell from 13.8% to 13.2%. Another encouraging data point was a slight increase in average weekly work hours that climbed from 34.4 hours to 34.5 hours. Revisions to previous reports were small.
The only potential caveat factors affecting this report consist of some furloughed workers that returned to work after the government shutdown and the seasonal hiring of holiday workers. There are seasonal adjustments in the employment numbers but the nature of hiring associated with retail sales occurring earlier and higher on-line shopping make such adjustments trickier.
This report was important for its implications on the potential of a Fed tapering of its $85 billion monthly bond buying program. Most are expecting this to start in the first half of next year but some have worried that it could start as early this month with a robust employment report. Today’s employment report appears consistent with expectations for next year (March in particular) with no action expected at the Fed’s upcoming December 17th – 18th meetings. Today’s stock market liked the information with equity indexes up nicely at the time of this report. More importantly, the fixed income markets are relatively calm which supports the “in line with expectations” perspective mentioned earlier.
In closing, there are a couple other points to be remembered. Tapering has mostly to do with long-term interest rates. With the Fed buying long-term bonds, it is serving to keep long-term interest rates down. It is the Fed’s hope that a stronger economy will take up this function on its own, sometime soon. As for short-term rates, the Fed has firm control of this area and intends to keep such rates low for a longer period of time as it awaits for sustainable strength in the economy. Market indicators point to a guess of 2015 as a time period where we may see short-term rates pushed higher.
