Jobs Report Misses Mark, Earnings Growth Inline, Unemployment Rate Hits 3.7%

Steel yourselves, for one of the more hotly-anticipated jobs reports of the year.

September payrolls were already going to be heavily scrutinized, but this week’s bond selloff makes things immeasurably more interesting.

As noted on Sunday evening, the headline number will be useful to the extent it either reinforces the “hitting on all cylinders” characterization of the economy or suggests things are starting to cool down a little bit, and Wednesday’s blockbuster ADP and ISM services prints appeared to tip a similarly ebullient NFP blowout.

But this week’s acute rout in bond land means that for market watchers, all eyes will be on the AHE print. The August jobs report was accompanied by (much) hotter-than-expected wage growth, with hourly earnings rising at their fastest pace since 2009.



That’s worrisome to the extent a series of above-consensus AHE readings risks a repeat of what happened in February, when January’s bond selloff collided with a hot wage growth print to catalyze a sharp risk-off move in equities as the market pondered the read-through of nascent inflation pressure for a newly-data-dependent Fed.

In some ways, the setup this time around is similar. Bonds are selling off sharply and inflation pressures look to be building, although the latest read on CPI helped allay some fears. At the same time, Jerome Powell sounds more inclined to data dependence than ever.

Specs added to their bearish bets in the 10Y through Tuesday, September 25 (i.e, ahead of the Fed meeting) and volumes this week seem to suggest that those bets were perhaps extended, although obviously, we’ll have to wait on CFTC to find out. At least some real money longs likely threw in the towel on Wednesday and overnight on Thursday. In case you needed another reminder, the 10-year spec short is sitting at a record:



Meanwhile, the dollar is gunning for its best streak of the year, buoyed by rising yields and expectations of further Fed hikes. The market appears to be catching up to the Fed in terms of policy expectations in 2019. EDZ8Z9 has widened out markedly to ~57bps from under 34 as late as August:



Again, what you’re hoping for here is some kind of Goldilocks report that shows steady (or, ideally, somewhat cool) wage growth and robust (but maybe not wholly euphoric) jobs growth. I suppose the worst case scenario would be an extremely hot AHE print and an underwhelming headline number.

So, that’s the lens through which you should view things. Without further ado…

Expectations and priors

  • Change in Nonfarm Payrolls, est. 185,000, prior 201,000
  • Change in Private Payrolls, est. 180,000, prior 204,000
  • Change in Manufact. Payrolls, est. 15,000, prior -3,000
  • Unemployment Rate, est. 3.8%, prior 3.9%
  • Underemployment Rate, prior 7.4%
  • Average Hourly Earnings MoM, est. 0.3%, prior 0.4%
  • Average Hourly Earnings YoY, est. 2.8%, prior 2.9%
  • Average Weekly Hours All Employees, est. 34.5, prior 34.5
  • Labor Force Participation Rate, est. 62.7%, prior 62.7%


  • U.S. Sept. Nonfarm Payrolls Rose 134k; Unemp. Rate at 3.7%
  • Nonfarm payrolls, net revisions, 87k from prior two months
  • Participation rate 62.7% vs prior 62.7%
  • Avg. hourly earnings 0.3% m/m, est. 0.3%, prior 0.3%
    • Y/y 2.8%, prior 2.9% est. 2.8%
  • Nonfarm private payrolls rose 121k vs prior 254k; est. 180k, range 125k-220k from 31 economists surveyed
  • Manufacturing payrolls rose 18k after rising 5k in the prior month; economists estimated 15k, range -15k to 22k from 18 economists surveyed
  • Unemployment rate 3.7% vs prior 3.9%; est. 3.8%, range 3.7%-3.9% from 72 economists surveyed
  • Underemployment rate 7.5% vs prior 7.4%
  • Change in household employment 420k vs prior -423k

Notably, the number of workers unable to work due to weather was 299k, versus an average 85k in September. In additional, nearly 1,500 workers who would normally be working full-time were only able to work part time last month on account of the weather. Weather will undoubtedly be cited in explaining a decrease in food and beverage service sector jobs.

August payrolls were revised sharply higher. The three-month average is 190,000.

This report likely doesn’t do much to change the narrative. While the headline was a miss, the unemployment rate at a near five-decade low underscores the notion that the U.S. economy is firing on all cylinders and steady, but not overtly hot, wage growth helps temper inflation fears.


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