Nonfarm Payrolls September 2018

Unemployment has not been this low in nearly 50 years- that’s the big takeaway this month. The Bureau of Labor Statistics released its figures at 7:30 CDT. Given recent economic reports and a 180 in Fed speak, our eyes were trained on wages, but unemployment coming in at 3.7% was certainly a surprise. Tempering our fundamental optimism, however, was the headline jobs figure showing US nonfarm payrolls expanded by 134,000 in the month of September. To be sure, the impact of Hurricane Florence cannot be written off in the September data set; BLS expects to have some numbers out in two weeks. Labor participation was unchanged month over month at 62.7% and hourly wages showed an annual increase of 2.8%. Major revisions to previous reports were also in the offing. Cumulatively, hiring activity was understated by 87,000 in July and August.

The US labor market remains resilient and Fed chairman, Jay Powell, has recently termed the American economy “extraordinary.” It can be argued that wage gains and mild inflation have given the Federal Reserve more room to raise rates in the near term. With China wrestling with tariffs and Europe struggling with the new Italian government let alone Brexit negotiations, rate differentials would likely augur a stronger US dollar. Continued dollar strength, rising wages, and slowing global growth rates could certainly impact US earnings. Speaking of corporate profitability, earnings season kicks off next week. We will be keeping a close eye on results and guidance.

There are many moving pieces in the marketplace and we are certain the variables will continue to change. With midterm elections on the horizon in the US and an everchanging global economic and political landscape, the last quarter of 2018 will be interesting. For now, TWP remains strategically bullish USD, bearish duration, and bullish equities.      

Market Outlook: Bullish USD, Bearish Duration, Bullish Equities