US Storm-Skewed Report Means Nothing about Anything

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The storms that hit the US had a greater impact on the US labor market than many expected.  The recorded a net loss of 33k jobs in September, whereas the market had largely expected around half of the year’s average. 


However, the market is looking past the headline and sees the drop in the unemployment rate to 4.2% from 4.4% and the underemployment rate to 8.3% from 8.6%, new cyclical lows.  Yet this too may be skewed.  The Bureau of Labor Statistics reported that 1.49 mln people would not go to work due to the weather.  This is the most in two decades. 

Hourly earnings jumped 0.5% in September to 2.9%.  This is the strongest pace since June 2009.  We worry this too may be distorted.  However, what most assuredly has not been skewed was the upward revision to the August series.  It was revised to 2.7% from 2.5%.  To the extent that there is a signal from this noisy data, this is it:  There is slightly greater upward pressure on wages than previously understood.   To be sure, it still lags behind other cycles, and it will take more than one or two months data to revive talk of the Phillips Curve, which links the employment to inflation.

US interest rates and the dollar rose in response to the data.  It was firm before the report. The US Dollar Index is up for a fourth consecutive week.  It is the longest streak since Q1.  US 10-year yields are near 2.40%, an area that has blocked stronger gains for nearly six months.

Canada’s jobs report was not skewed by the weather, but it appears to be having its own quirkiness.  After losing 88k full-time jobs in August, it gained 112k in September.  Part-time jobs were volatile in the other direction.  Remember, as simply rule of thumb, Canada is 1/10 the size of the US.  This illustrates the volatility of Canada’s data.   The unemployment rate was unchanged at 6.2%, while the participation rate slipped to 65.6% from 65.7%.

The main takeaway from today’s North American jobs report will reinforce what the market was already expecting.  The Fed will most likely hike rates in December, while the Bank of Canada is in no hurry to hike rates this month, which would be the third consecutive hike.