There is nothing good about Friday’s labor market report - between September and October, 524k jobs were lost in the US economy. Even though last month’s job losses were worse than the market expected (-240k), it was not as bad as everyone had feared. But if you count the big downward revision to the September number, the labor market is in its weakest shape in the past 5 years. What is the most shocking however is the fact that the unemployment rate jumped to 6.5%, the highest level in 14 years.
The manufacturing sector reported a 90k drop in jobs while average weekly hours and the monthly change in average hourly earnings remained stable.
Expect the Fed to respond with another 50bp rate cut this month as the job losses mount.
The bottom line is that the tenth consecutive month of negative job growth confirms that the labor market is in a recession and that the US economy is in trouble. Although we don’t expect the job losses to end in October, we are very close to the -300k level and once we see that number exceeded, the slope or magnitude of job losses will begin to slow.
In the past 3 recessions, job losses have extended beyond 10 months but the largest single month job loss was marginally above 300k. The longest stretch of job losses in the past 30 years was between 1980 and 1982, when we saw 17 consecutive months of job losses. With market caps evaporating and lending still frozen, US companies will continue to tighten their belts and shed jobs.
The reaction in the currency market has been relatively tepid because there was an air pessimism going into the non-farm payrolls number. Everyone thought that NFPs would drop by 300k including myself and when you add the -125k September revision with the -240k October job loss, it has exceeded that number.
As we indicated in our non-farm payrolls preview, a weak NFP number may not permanently stop the dollar’s rise. The dollar is appreciating not because of the strength of the US economy, but because money flocks into low yielding currencies during a global recession. In a very short period of time, the US dollar has become the second lowest yielding G7 currency.
The NFP number should be bearish for US equities today and by extension, USD/JPY and other the Japanese Yen crosses.