Morning Report: Blowout jobs report

Vital Statistics:


Last Change
S&P futures 2752 12.25
Eurostoxx index 364.42 2.24
Oil (WTI) 63.42 -0.46
10 year government bond yield 3.18%
30 year fixed rate mortgage 4.89%


Stocks are higher this morning after a strong employment report. Bonds and MBS are down.


Jobs report data dump:

  • Nonfarm payrolls up 250,000
  • Unemployment rate 3.7%
  • Average hourly earnings up 3.1%
  • Labor force participation rate 62.9%
  • Employment-Population ratio 60.6%


Overall, an exceptionally strong report, with nothing to dislike. Strong wage growth, increasing labor utilization rates, low unemployment. Simply  put, this is a blowout jobs report, the best we have seen in years.


The sell-off in the stock market was beginning to push the Fed Funds futures towards the dovish direction, but this report pretty much ended that. While  we will get one more job report before the December FOMC meeting, it is looking like we are going to see another 25 basis points.


Productivity increased 2.2% in the third quarter, which was a deceleration from the 2.9% we saw in Q2. Unit labor costs rose 1.2%. We are seeing rising compensation costs (up 3.5%) while output is also up. Rising comp costs are much higher than the inflation rate, and while it is easy to focus solely on wages, the cost of an employee is more than just wages – it includes benefits and other regulatory costs as well.


Construction spending was flat in August and rose 7.2% YOY. Residential construction rose 0.5% MOM and 4.9% YOY. Office and lodging rose smartly on a YOY basis. Interestingly, education building is still going strong, just as the tail end of the Millennial generation is graduating. You would think colleges would figure out how to compete on price, but for the moment they are competing on amenities and infrastructure. Which is partly why college is so expensive. There is going to be a reckoning, IMO when a demographic dearth of students meets falling affordability driven by rising interest rates.


Manufacturing slowed somewhat last month according to the ISM Manufacturing Survey, however it remains robust, despite what is going on with trade.  That said, many of the comments from survey participants noted that prices are rising, partially driven by tariffs. Supply lines are stretched and more firms are running at capacity. That said, the higher anecdotal capacity utilization isn’t translating into the numbers, at least not compared to historical norms:


capacity utilization


Rising interest rates have pulled back corporate bond issuance. Corporate bond issuance is often the canary in the coal mine for the economy and therefore bears watching. Many companies tapped the markets during the ZIRP years to refinance pre-crisis debt and the fund stock buybacks, so perhaps the comparisons aren’t really all that valid. Investor appetite is waning, however that may be due to the fact that shorter duration paper is beginning to earn a return, so funds are getting defensive with the Fed in tightening mode. So far we aren’t seeing a material widening of credit spreads. Still, in the summer of 2007, a few leveraged buyouts were unable to sell the paper from M&A deals, and the buyside went on a buyer’s strike against structured products. At the time, nobody had any idea what it would turn into.

18 Responses

  1. sad trombone for left-econ twitter and the business press…

    Liked by 1 person

    • Let me guess. They’re crap jobs anyway

      Liked by 1 person

      • Liked by 1 person

      • Liked by 1 person

        • Whew! Dodged a bullet there.


        • I am but an ignorant layperson, but what is “rate of job growth below median” supposed to mean? And given the market as it stands, how is this the case?

          Is the constraint just that at high employment, you aren’t going to create that many new jobs because you’ve already created all the labor market can bear? Or … is this some other complaint?

          “He inherited it.” In what sense? In the sense that presidents don’t control the job market and we don’t live in a Command economy, thus all presidents inherit the economy? Or in the sense that most economically impactful legislation is authored by congress, and the president just signs it, mostly? They need to be more specific.


        • They honestly believe that (a) their policies do not inhibit the economy and (b) the only variable that matters is inequality.

          And yes, job creation is supposedly bumping up against a constraint (which is what the unemployment rate is telling you), however the employment / population ratio and LFPR numbers say we aren’t constrained just yet.


        • They are putting to much effort into it. Just say Trump faked the stats.


  2. Juking the stats … Making robberies into larcenies. Making rapes disappear. You juke the stats, and majors become colonels. I’ve been here before.


  3. Heh.

    Liked by 1 person

    • I cannot wait for Wednesday and the end of political ads…


      • Local ads for Marsha Blackburn (by which I mean, ads about how Phil Bredesen is HITLER) are awful. The attack ads on Blackburn are kind of meek, by comparison.

        I actually like Bredesen but I have to think as a Democrat he’d be a party man and march in step to the DNC. I know Blackburn will march in step to the GOP as that’s what the positive ads for her essentially say: She’ll be our Trump in the senate!

        Local advertising on websites is more irritating than it is compelling. Hey, we know you’re location! Here’s a local election ad!

        I agree. The only real problem with “money in politics” is all the awful ads that nobody likes and nobody wants to see.

        Saw a national ad for women to vote. “If you’re a woman, if you believe a woman should have rights, then you HAVE TO VOTE this November!”

        That’s the only stuff that really makes me want to get out to vote . . . against those pampered, entitled, delusional snowflakes. But even that’s not that motivating.


  4. #BelieveAllWomen


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