September US Non-Farm Payrolls Decline by 33,000, Earnings Growth Jumps To 0.5%

US non-farm payrolls declined 33,000 for September compared with expectations of a gain around 85,000 for the month and this was the first reported decline for over seven years.

The August data was revised to show an increase of 169,000 from the 156,000 reported originally while the 3-month average declined sharply to 91,000 from 172,000.

There was a significant impact on the data from hurricanes Harvey and Irma with a notable dip in employment numbers for the month due to storm damage.

The goods sector recorded a 9,000 gain on the month with a slight decline in manufacturing employment offset by gains in construction.

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Within the services sector, retail employment fell for the third successive month while there was a substantial 111,000 decline in the leisure and hospitality sector.

Government jobs increased 7,000 in September after a revised 5,000 gain the previous month.

According to the household survey, unemployment to 4.2% for the month from 4.4% in August with the number of employed reported to have increased very strongly by over 900,000 on the month as the participation rate rose to 63.1% from 62.9%.

Average earnings increased 0.5% on the month, much stronger than consensus forecasts of a 0.3% gain with year-on-year growth accelerating to 2.9% from 2.5%.

Ahead of the release, Fed Funds futures indicated that the chances of a further rate increase by the end of 2017 were over 80%.

Given that the employment data was distorted by hurricane damage, the overall impact on sentiment surrounding the labor market will be limited, especially given the reported jump in employment within the household survey.

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The Federal Reserve is watching inflation developments very closely and the earnings data will, therefore, be important for inflation expectations. The Federal Reserve members have been puzzled by the lack of upward pressure on earnings despite a very tight labor market. The 0.5% monthly increase in earnings may have been distorted by a dip in low-paid employees due to hurricane damage, but the data overall will increase confidence of acceleration and an increase in the inflation rate.

In this context, the strong earnings data will strengthen the case for higher interest rates.

The dollar gained ground as the earnings component dominated with EUR/USD at fresh 5-week lows below 1.1680 while USD/JPY broke above the 113.20 level. Treasuries came under further selling pressure with the 10-year contract declining over 10 ticks to yield 2.39% while equity futures were slightly lower.