Economy

Stocks rallied sharply after the Labor Department said nonfarm payrolls rose by 150,000 in October — 20,000 fewer than expected.
Slow, controlled growth is something the markets and the Fed are seeking in the current climate, negative growth is not.

Traders work on the floor of the New York Stock Exchange (NYSE) on November 02, 2023 in New York City. 
Spencer Platt | Getty Images

Friday’s market reaction to the jobs report comes down to a simple premise: bad news is good news, as long as it isn’t too bad.
Stocks rallied sharply after the Labor Department said nonfarm payrolls rose by 150,000 in October — 20,000 fewer than expected but a difference attributable pretty much completely to the auto strikes, which appear to be over.

For the Federal Reserve, the relatively muted job creation coupled with wage gains nearly in line with expectations adds up to a scenario in which the central bank doesn’t really have to do anything. It can just continue to let the data flow in, without having to move on interest rates as it evaluates the impact of its previous 11 hikes.
“The Fed finally got what it’s been looking for — a meaningful slowdown in the labor market,” said Mike Loewengart, head of model portfolio construction for Morgan Stanley’s Global Investment Office.
“We’ve seen one or two head fakes in this direction before, but the fact that this report followed other weaker-than-expected economic data points this week may encourage investors who have been waiting for a less-hawkish Fed,” he added.
Markets reacted in more ways than one to the report. Traders in fed funds futures reduced the probability for a December rate hike to less than 10% and now see the first cut coming as soon as May, according to CME Group tracking.
However, that cut could be the really bad news, as it likely would signal the Fed’s concern that the economy is slowing so much that it needs a boost from monetary policy. Slow, controlled growth is something the markets and the Fed are seeking in the current climate, negative growth is not.

“Investors who are eager for the Fed to be cutting rates should be careful what they wish for,” Michael Arone, chief investment strategist at State Street Global Advisors, said in an interview earlier this week.
Despite market pricing, it seems like cuts aren’t around the corner if recent statements from Fed officials are any indication. Fed Chairman Jerome Powell said Wednesday that cuts have not been a part of the conversation among policymakers.
“It seems like that’s still a ways off in my mind,” Richmond Fed President Thomas Barkin said during an interview Friday on CNBC’s “Squawk on the Street.” “You could imagine scenarios where demand comes off and you have to do something. You could imagine a scenario where inflation is starting to settle and you want to lower real rates. Both of those imaginary things still feel pretty far out the distance.”
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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.The profitability of non-financial UK companies fell in the quarter to June, according to official data that appears to reaffirm the view of interest rate-setters that higher corporate profit margins have not played a key role in driving up inflation.Companies made a net rate of return of 9.6 per cent in the three months to June, the Office for National Statistics said on Friday, down from a revised 10.7 per cent in the previous quarter and below the pre-pandemic average of 10.9 per cent.The findings, which exclude data from the financial services sector, are broadly in line with the view of the Bank of England that “greedflation” — where businesses increase prices beyond levels their own price pressures would demand — has not considerably pushed up inflation, which stands at 6.7 per cent.Inflation surged to a four-decade high of 11.1 per cent in October 2022, with food price growth rising to a 45-year record of 19.2 per cent in March, raising concerns among some economists that the trend was fuelled by companies pushing up prices excessively. But as it held interest rates at 5.25 per cent on Thursday, the BoE again rejected concerns about “greedflation”. It pointed out that over the past two years aggregate profit margins had “remained squeezed as many companies were unable to fully pass through higher costs into output prices while sales volumes were weakening”. The sectoral analysis of the ONS data, which excludes the financial services industry, showed the tailing-off of the energy price shock following Russia’s full-scale invasion of Ukraine early last year and the effects of the subsequent imposition of a windfall tax on North Sea oil and gas producers.Net profitability for North Sea oil and gas producers dropped to 3.2 per cent in the quarter to June, the lowest since the same period in 2021 and a long way from the peak of 22.3 per cent in the final quarter of last year.Profit margins remain well below their pre-pandemic levels in the manufacturing sector, where the net rate of return fell to 7.8 per cent from 8.6 per cent in the first quarter. Over the past year, the margins in the manufacturing sector averaged 7.6 per cent, compared with an average of 14.4 per cent between 2014 and 2019.In the services sector, profitability dropped to 15.2 per cent in the three months to June, after rising 1.2 percentage points to 16.1 per cent in the previous quarter. However, both figures remained well below the recent peak of 19 per cent in 2015.“Overall, there is little evidence of persistent ‘greedflation’,” said Tomasz Wieladek, chief European economist at the investment company T Rowe Price. He expected profitability in manufacturing and services would be “squeezed significantly” going forward because of persistent elevated wage pressure and weak demand. The BoE this week noted that companies were trying to rebuild margins as cost pressures moderated but added that many businesses “currently see limited scope for margin rebuilding through further price increases”. More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Divorce is a fraught process at the best of times. Splitting during a cost of living crisis can add serious financial pressure to the emotional impact of a separation.Splitting couples have to contend with falling house prices, inflation and a choppy jobs market which can make settling property, pension, tax and maintenance arrangements even more challenging. That is not to mention legal fees, which can range from £25,000-£250,000, depending on how long and detailed your settlement is. If you’ve been through this, we’d like to hear from you about your experience of divorce during the cost of living crisis.Have you considered divorce, but ultimately backed off or delayed a split due to strains on your finances? Or have you jumped at the chance to buy out your partner at a time of low asset prices? Have you come to a “kitchen table agreement” to keep legal costs down? Or would you prefer to iron out the details with the help of a professional adviser?Please get in touch, in confidence, by email to [email protected]. More

The conflict has significantly impacted oil and gas markets with prices rising by approximately 9% and 34% respectively. A sustained 10% increase in oil prices could potentially shrink the Euro area real GDP by 0.2% after one year and inflate consumer prices by nearly 0.3pp. These concerns are shared by Bank of England Governor, Andrew Bailey, and the World Bank, which warned that crude oil prices could surpass $150 a barrel if the conflict continues to escalate.Despite recent stabilization in Brent crude oil prices, a global reduction in LNG exports is causing European natural gas prices to rise. However, Vashkinskaya suggests that energy cost support policies could potentially mitigate these impacts.The conflict also poses a risk to consumer confidence, as seen from its decline following Russia’s invasion of Ukraine in March 2022 and the record-high conflict-related uncertainty observed in October. Even though the Eurozone’s direct exposure to the Middle East is limited (0.4% of the euro area’s GDP from Middle East trade), indirect effects like higher interest rates could exacerbate impacts. Despite the Eurozone’s limited exposure to the Middle East, factors such as potential disruptions in oil and gas markets, high interest rates in both the Eurozone and the UK, and decreased regional trade could lead to severe impacts on the European economy.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

Nonfarm payrolls increased by 150,000 for the month, against the consensus forecast for an increase of 170,000. That was a sharp decline from the gain of 297,000 in September.
The unemployment rate rose to 3.9%, the highest level since January 2022, amid a sharp decline in household employment.
From a sector standpoint, health care led with 58,000 new jobs. Other leading gainers included government (51,000), construction (23,000) and social assistance (19,000).
Manufacturing posted a decline, mostly due to the auto strikes.

The U.S. economy saw job creation decelerate in October, confirming persistent expectations for a slowdown and possibly taking some heat off the Federal Reserve in its fight against inflation.
Nonfarm payrolls increased by 150,000 for the month, the Labor Department reported Friday, against the Dow Jones consensus forecast for an increase of 170,000. The United Auto Workers strikes were primarily responsible for the gap as the impasse meant a net loss of jobs for the manufacturing industry.

The unemployment rate rose to 3.9%, the highest level since January 2022, against expectations that it would hold steady at 3.8%. Employment as measured in the household survey, which is used to compute the unemployment rate, showed a decline of 348,000 workers, while the rolls of the unemployed rose by 146,000.
A more encompassing jobless rate that includes discouraged workers and those holding part-time positions for economic reasons rose to 7.2%, an increase of 0.2 percentage point. The labor force participation rate declined slightly to 62.7%, while the labor force contracted by 201,000.
“Winter cooling is hitting the labor market,” said Becky Frankiewicz, chief commercial officer at staffing firm Manpower Group. “The post-pandemic hiring frenzy and summer hiring warmth has cooled and companies are now holding onto employees.”
Average hourly earnings, a key measure for inflation, increased 0.2% for the month, less than the 0.3% forecast, while the 4.1% year over year again was 0.1 percentage point above expectations. The average work week nudged lower to 34.3 hours.
The Fed uses wage data as one component of its inflation watch. The central bank has opted not to raise interest rates at its past two meetings despite inflation running well above its 2% target. Following Friday’s jobs data, markets further reduced the probability of a rate hike in December to just 10%, according to a CME Group gauge.

Markets reacted positively to the report, with futures tied to the Dow Jones Industrial Average adding 100 points.
From a sector standpoint, health care led with 58,000 new jobs. Other leading gainers included government (51,000), construction (23,000) and social assistance (19,000). Leisure and hospitality, which has been a leading job gainer, added 19,000 as well.
Manufacturing posted a loss of 35,000, all but 2,000 of which came because of the auto strikes. Transportation and warehousing saw a decline of 12,000 while information-related industries lost 9,000.
“After years of incredible strength, the labor market could finally be slowing. The topline miss, plus downward revisions and higher unemployment, deliver a strong message to [Chair] Jerome Powell and the Fed,” said David Russell, global head of market strategy at TradeStation. “Further tightening is now highly unlikely, and rate cuts could be back on the table next year.”
In addition to the October slowdown, the Bureau of Labor Statistics revised lower its counts for the previous two months: September’s new total is 297,000, from the initial 336,000, while August came in at 165,000 from 227,000. Combined, the revisions took the original estimates down by 101,000.
Job creation skewed heavily to full-time workers, reversing a recent trend. Full-time jobs grew by 326,000, while part-time tumbled by 670,000 as summertime seasonal jobs wrapped up.
The report comes at an important time for the U.S. economy.
Following a third quarter in which gross domestic product expanded at a 4.9% annualized pace, even better than expected, growth is expected to slow considerably. A Treasury report earlier this week put expected fourth-quarter GDP growth at just 0.7%, and 1% for the full year 2024.
Fed policymakers have deliberately tried to slow the economy in order to tackle inflation
. On Wednesday, the Fed’s rate-setting committee chose to hold the line for the second consecutive meeting following a series of 11 hikes since March 2022.
Markets expect the Fed is likely done raising, though central bank officials insist they are dependent on incoming data and still could hike more if inflation doesn’t show consistent signs of falling.
Inflation data has been mixed lately. The Fed’s preferred gauge showed the annual rate fell to 3.7% in September, an indication of steady but slow progress back to its goal.
Surprisingly strong consumer spending has helped propel prices higher, with strong demand giving companies the ability to charge higher prices. However, economists fear that rising credit card balances and increased withdrawals from savings could slow spending in the future. More

Simultaneously, work will commence on realigning a New Jersey highway to facilitate tunnel excavation. Two large boring machines will be used to carve a path under the river into Manhattan’s bedrock. The two-track Gateway tunnel, with digging set to begin in 2025, is scheduled for a 2035 opening.The project has faced political hurdles for over 15 years and saw delays during President Trump’s term. However, it has gained traction under President Biden’s administration. Schumer has secured more than $10 billion in federal funds for the project, and Buttigieg has deemed it a national priority.The existing tunnels’ poor condition, which have not been renovated since former New Jersey Governor Chris Christie halted their renovation 13 years ago, underscores the project’s importance. President Biden himself pledged $292 million towards the concrete casing, and Schumer announced a $6.88 billion grant from the U.S. Department of Transportation for the project.New York and New Jersey have agreed to split the remaining costs equally. This agreement represents a significant step forward for a project that is essential for maintaining and improving transportation infrastructure in one of the nation’s busiest regions.This article was generated with the support of AI and reviewed by an editor. For more information see our T&C. More

The chance of a Fed rate hike by January fell to below 20% after the report, from about 30% before the report, based on prices of futures contracts that settle to the Fed policy rate. Pricing now reflects a better-than-even chance of a rate cut by May, against earlier expectations for rate cuts to start in June. Nonfarm payrolls increased by 150,000 last month, and September job gains were smaller than earlier reported, the Labor Department said Friday. The unemployment rate rose to 3.9%, from 3.8%, and wage growth slowed.The Fed this week held its policy rate steady at 5.25%-5.50%, and though Fed Chair Jerome Powell said policymakers were not yet confident that was high enough to bring inflation down to the Fed’s 2% target, traders appear are betting on it. The report “is consistent with the views of the market that the job market and the economy is decelerating and that’s going to keep the Fed on hold and will cause central banks next year to cut rates,” said Jay Hatfield, chief executive officer at Infrastructure Capital Management. More

The dollar index dropped 0.6% to 105.437. Against the yen, the dollar slid 0.7% to 149.44 yen.Data showed nonfarm payrolls increased by 150,000 jobs last month. The numbers for September were revised lower to show 297,000 jobs created instead of 336,000 as previously reported.”The strongest argument for the Fed to abandon its tightening bias is that wage growth continues to slow,” wrote Andrew Hunter, deputy chief U.S. economist, at Capital Economics, in an note after the jobs report.”Overall, we suspect the softening in labour market conditions has much further to run and still expect the Fed to be cutting interest rates again in the first half of next year.”========================================================Currency bid prices at 8:53AM (1253 GMT)Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid Previous Change Session Dollar index 105.2900 106.2000 -0.84% 1.739% +106.2200 +105.2300 Euro/Dollar $1.0710 $1.0623 +0.82% -0.05% +$1.0720 +$1.0616 Dollar/Yen 149.4050 150.4700 -0.70% +13.96% +150.5150 +149.2950 Euro/Yen 160.00 159.79 +0.13% +14.04% +160.1100 +159.6100 Dollar/Swiss 0.8995 0.9060 -0.70% -2.70% +0.9074 +0.8990 Sterling/Dollar $1.2309 $1.2202 +0.88% +1.78% +$1.2317 +$1.2185 Dollar/Canadian 1.3699 1.3738 -0.28% +1.11% +1.3760 +1.3693 Aussie/Dollar $0.6495 $0.6434 +0.97% -4.69% +$0.6504 +$0.6420 Euro/Swiss 0.9632 0.9623 +0.09% -2.66% +0.9645 +0.9616 Euro/Sterling 0.8698 0.8703 -0.06% -1.65% +0.8721 +0.8701 NZ $0.5974 $0.5894 +1.35% -5.92% +$0.5983 +$0.5885 Dollar/Dollar Dollar/Norway 11.0590 11.1590 -0.93% +12.65% +11.1790 +11.0550 Euro/Norway 11.8424 11.8470 -0.04% +12.85% +11.9021 +11.8350 Dollar/Sweden 10.9502 11.1063 -0.58% +5.21% +11.1230 +10.9488 Euro/Sweden 11.7300 11.7983 -0.58% +5.21% +11.8115 +11.7291 More