Hot jobs markets surprises many…
- The Department of Labor released its September jobs report on Friday containing a number of surprises. The Street expected the unemployment rate to stay at its most recent 4.2% level, and instead the reading came in lower at 4.1%. Further, employers added 254,000 new positions in September which was 40%+, or 100,000 more, than economists had anticipated. Lastly, the report revised data from prior summer months to show that employers actually created an additional 72,000 more jobs than initially reported.
- Until this jobs report was released, investors were predicting that the Federal Reserve would cut the Fed Funds rate by a total of 1.25 percentage points before year end. Given the 0.50 percentage point rate cut last month, expectations for further rate cuts before year-end were high. As a result of this jobs report, analysts are now expecting much less aggressive action by the Fed’s rate setting committee. Partially as a result, the benchmark 10-Year Treasury rate has climbed almost 10% within the last month, to ~4.0%, a dramatic increase in an otherwise falling rate.
- Last week, the U.S. Bureau of Economic Analysis also released an upward revised final estimate of the 2nd quarter U.S. GDP which showed an annual growth rate of 3.0%. In comparison, the year’ first quarter had a more tepid growth rate of 1.6%. With the more robust economic growth combined with the impressive jobs report, the economy is clearly better positioned than many had believed.
- In addition to early earnings reports from several bellwether companies, this week will also have the latest update on the nation’s Consumer Price Index (CPI) and Producer Price Index (PPI), the two most popular inflation readings. Investors are expecting both numbers to continue their gradual descent, with the CPI reading expected to have an annual 2.3% rate increase and the PPI expected to print a 1.7% increase year over year growth rate. If these numbers are achieved, the markets will happily absorb this positive data.