U.S. bonds traded flat to mildly positive in response to the closely watched monthly jobs report. The Labor Department reported that October non-farm payrolls rose by 161,000, lower than the 175,000 expected. To date, average job growth per month has been 181,000 new jobs created per month, which is well below the 229,000 new jobs per month created in 2015. The slowdown in job growth may be keeping interest rates in check as we head into the last days of the presidential election and the final two months of the year.
One area of concern regarding rising interest rates was the data within the jobs report confirming that hourly earnings rose by 0.4%, above the 0.3% expected. This rise in earnings is an inflationary indicator. If hourly earnings continue to rise, we could see wage-based inflation pick up and this would definitely put pressure on the Fed to hike rates down the road.
Based on historical measures out of the Federal Reserve, 5% has been the mark for full employment which is measured by the Unemployment Rate. The October Unemployment Rate fell to 4.9% from 5.0%, and the U-6 number, which measures total unemployment, fell to 9.5% from 9.7%, while the Labor Force Participation Rate edged lower to 62.8% in October from 62.9% in September, still a multi-decade low. These figures continue to improve, albeit ever so slowly, and based on current employment data, we would not be surprised to see a Fed rate hike this December.
With the Fed and the Jobs Report behind us, bonds have jumped over two hurdles. With the election coming Tuesday and bringing nothing but uncertainty, it remains wise to float as long as the 200-day Moving Average holds and the 10-year Treasury note remains under 1.800%.
