Non-farm payrolls jumped 336k in September (nearly double expectations of 171k). The average 3-month change for payrolls firmed to 266k. To put this into context: trend payroll job growth (the number of jobs needed to keep the unemployment rate unchanged, over the long run) is just 65k. Employment growth will eventually slow. But this need not be accompanied by a rise in layoffs. The 4-week average for initial claims fell to 208.8k in the week ending September 30th, the lowest since February.
Fiscal policy remains too loose. Government added 73k payrolls in September, and an average of 71.3k/month in Q3, as hiring re-accelerated. The recent strength reflects a lack of control on public spending. Government alone is creating enough jobs to exert downward pressure on the unemployment rate.
The y/y for aggregate weekly payrolls was still running at 5.6% y/y in September. As an approximation for nominal GDP growth, it suggests companies are generating solid cash flows, delaying some of the pain from higher interest rates. Corporate net cash flow (with IVA) hit a record $3.204tr in Q2. However, ten- and 30-year real yields jumped to 2.47% and 2.54%, respectively, on Friday after the payrolls report, and ahead of important auctions this week. October is a difficult month for equities, and the bond market backdrop is not constructive.
Term premia have turned positive again. Clearly events over the past few days raise the risk a of broader conflict in the Middle East. The minimum to expect is that the terrible events over the weekend put a floor under oil prices. The tragedies unfolding also highlight the complacency that the bond market had been lured into, by years of unconventional monetary policies.
