No surprise here, but I suppose it’s worth mentioning because you know, it’s Goldman.
Following this morning’s upbeat average hourly earnings print, everyone is pretty damn sure that a December hike is a foregone conclusion. There was no risk from the headline jobs number. The hurricane distortions rendered that meaningless, so you knew going in that any beat on AHE would be interpreted as something pretty close to “proof” that another hike this year is not only likely, but in fact warranted.
Here’s what we wrote bright and early on Friday morning:
Maybe a completely meaningless payrolls report is just what the doctor ordered – after all, if AHE beats we can all spin it as a positive that should be traded as such (long USD, short USTs), and [if the NFP number misses] we can just dismiss it as meaningless on the way to making the very same trades.
That’s what everyone did – although the knee-jerk moves have since been fade.
That brings us to Goldman who is out with their quick take:
Nonfarm payrolls fell 33k in September—considerably below expectations—however, we believe temporary hurricane effects likely explain all or most of the weakness. In fact, the employment report appears strong on net after taking into account hurricane effects, given the drop in the unemployment rate to a new cycle low.
Average hourly earnings increased by a larger-than-expected 0.45% in September (mom), and a significant upward revision to July growth (+0.2pp to +0.5%) resulted in the year-over-year rate increased to +2.9% from a previously reported pace of +2.5% in August.
We believe the headline payrolls miss is considerably less important than usual for the monetary policy outlook, because hurricanes clearly affected the data, other US growth data has been firm, and there are two more employment reports between now and the December meeting to make up for the weakness. We actually think the most important takeaway from the report was the upward revision to average hourly earnings, with wage growth now reported at just below 3%.
Given this and given the drop in the unemployment rate to a new cycle low, we increased our Fed probabilities, with subjective odds of a December hike at 80% (vs. 75% previously).
Bad news for stocks.