The US jobs data was considerably stronger than expected leaving no doubt about the December meeting being live despite the year-end considerations that some had seen tying the Fed’s hands. The dollar broke through key chart points near JPY122 and $1.08 for the euro.
Nonfarm payrolls leapt 271k, nearly 100k more than the consensus anticipated. The August and September job growth was revised higher by a minor 12k. September was actually revised down by 5k, with August being revised up 17k.
The unemployment rate slipped to 5.0% while the participation rate was unchanged at 62.4%. The underemployment rate fell to 9.8%. It is the first sub-10% print since before the Great Financial Crisis. The 0.4% increase in average hourly earnings was twice the expected increase and lifts the year-over-year rate to 2.5%, a new cyclical high.
Private-sector payrolls added 268k jobs. The 3k increase in government workers was the least in several months. Over the July-September period, the government add an average of 29k a month. It is difficult to find the cloud in the silver lining as economists are often wont to do. Even the household survey, which sometimes is not consistent with the establishment survey, saw a 320k increase in jobs, offsetting in full the 236k decline in September. Manufacturing employment that had fallen for two consecutive months was flat, which compares to expectations of a 5k decline, and weakness of the ADP survey and soft manufacturing ISM employment.
US interest rates have moved sharply higher response to the jobs data. The 10-year yield is near 2.30% (+7 bp), and the 2-year is near 92 bp (+9 bp). The implied yield on the December Fed funds futures has pushed 2 bp higher.
Canadian jobs data were also better than expected. It grew 44.4k jobs compared with a consensus estimate of 10k. The unemployment rate ticked down to 7.0% even though the participation rate rose to 66.0% from 65.9%. The consensus had expected a decline in the participation rate. Full-time jobs grew by a lesser 9k after a nearly 62k loss in September. Despite the local data, the Canadian dollar is being overwhelmed by the surging greenback.
The divergence theme was underscored this week and the US jobs data keep it central to the investment climate. A dovish Draghi, coupled with unexpected declines in German factory orders and industrial output keeps open the possibility that the Federal Reserve and ECB move in opposite directions next month. The Bank of England was also more dovish than expected, making sterling one of the weakest currencies in recent days.