Treasury yields were higher overnight on firmer oil prices and pro-risk sentiment in Asia following the Senate debt ceiling agreement, but yields are now lower on the day in the immediate aftermath of a disappointing September jobs report. Nonfarm payrolls added 194,000 jobs for the month, well below the 500,000 consensus expectation according to Bloomberg. The miss versus expectations was attributable in part to a 123,000 decline in government jobs, which included a 144,000 decline in local education jobs (teachers), but private payrolls also disappointed (317,000 vs 450,000). The headline unemployment rate fell 40 basis points to 4.8% (5.1% expected) and was impacted by a 183,000 decline in the official labor force.

On the wage inflation front, average hourly earnings surged 0.6% m/m in September, higher than the 0.4% expected growth rate. On a year-over-year basis, wage growth matched expectations at 4.6%, up 30 bps from the prior month. Overall, the report was not as bad as the headlines might suggest. The outsized decline in education jobs looks to be heavily influenced by seasonal adjustments, which have become more problematic in the Covid era (i.e., applying “normal” annual adjustments to abnormal times), and the wage inflation data is reflective of a labor market that continues to tighten. While supply chain issues and reopening of service sectors may indeed prove transitory as it relates to overall price inflation, wages are typically a stickier source of future price gains.

Jason Haley
Chief Investment Officer