Friday, November 2, 2012

October NFP Beat Everyone's Expectations

The BLS and its widely followed employment report certainly surprised everyone this morning, especially us.  October NFP print was 171K versus our 110K and the Street's 125K.  It appears we'll need to adjust our NFP model or add a dummy variable to indicate month before the Presidential election.  By the way, the Aug. and Sept. numbers were revised up by a total of 84K.  In fact, the Aug. NFP has been revised up by 96K the last two months!  In Sept. while we had estimated a 145K change in NFP (versus the Street's 113K), maybe we should have included a dummy variable for upcoming QE discussions.  The BLS has found it convenient to revise the Sept. figure to 148K.  The S&P 500 futures is up only 6.0 points, or 0.42%; but gold is taking a beating, down 1.1%.  It appears that part of this upbeat jobs report was priced in yesterday when the market jumped 1%+, or that the market believes this report will up Obama's chances of getting re-elected.  We note that impact of hurricane Sandy will be evident in the November jobs report.
  • The 171K change in NFP included a decline of 13K of jobs in the government sector, resulting in total private NFP change of 184K.  The decline in government jobs was expected as it had suddenly and unusually gained significantly and revised up for three straight months.
  • Big turnarounds compared to the previous month took place in the goods producing sector, led by manufacturing.  Given the regional Fed reports and the ISM, this was very surprising to us.  After losing 14K jobs in Sept., manufacturing added 13K in Oct. 
  • Apparently, the Holiday driven hiring has begun as jobs in retail trade jumped by 36.4K.  This included more than 4K in auto dealers, and  health and personal care stores.  Clothing stores added 3.1K.  However, number of employees in department stores is estimated to have declined by 2K. 
  • The unemployment rate inched up to 7.9% from 7.8% in Sept.  The more important U-6 unemployment rate declined slightly to 14.6% from 14.7%.
  • One of the few negatives in the household survey results included a sizable increase in people being unemployed for more than 27 weeks, +158K. 
  • In addition, the number of people working part-time due to only finding part-time work went up by 42K.  
  • Lastly, while the NFP number came in much better than expected, average weekly hours worked remained unchanged and average hourly wages actually declined by a penny.  This could result in further stagnation of growth in disposable income and possibly have a negative impact on consumption in the future.  We will see if all of the hiring in retail trade will pay off for the employers!

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