September’s headline jobs number was better than expected, yet stocks and bonds are rallying. We thought a strong labor market was a negative, so what gives? Let’s break it down. 👇
Nonfarm payrolls increased by 336,000 in September, widely surpassing expectations of 170,000. That topped August’s number by over 100,000 and was the largest since January. Service-related industries accounted for 234,000 of the total job gains, with goods-producers adding just 29,000.
The main concern from investors is about wage gains, a sticky form of inflation that impacts the prices of everything, especially the services sector. And if we recall prior inflation reports, the services sector is where the majority of core inflation currently comes from.
That brings us to the main reason why reason investors liked today’s data. 👍
Wage increases were softer than anticipated, with average hourly earnings rising 0.2% MoM and 4.2% YoY. Both were ten bps below the consensus view, with their downward trend continuing. 🔻
Additionally, wage inflation could decrease by more workers entering the labor force. The labor force participation rate held steady at 62.8% and remains about 50 bps below its pre-pandemic level. That said, it continues to trend steadily higher since the pandemic low, offering more hope for the Fed and other economists hoping to see wage growth’s deceleration continue.
Overall, the bond market was highly stretched to the downside after last month’s selloff. Sentiment and positioning had gotten very negative in the short term, so this little bit of good news in the jobs report was enough to spark a rally. 📈
The real question will be where rates ultimately decide to settle as the market continues to adjust its expectations for the Fed’s next move. Time will tell! 🤷