September US nonfarm payrolls slightly missed forecasts but underlying data solid:Solid but unspecta

Despite a slightly weaker than forecasted headline number for the nonfarm payrolls, strongunderlying data meant that the jobs data was solid overall. Following a rebound of the ISMdata at the start of the month, the payroll data supports the view that the US economy maybe stabilizing after a disappointing August.

    Nonfarm payroll data slowed slightly from August, but this was in part tied to previous upwardrevision of data. Furthermore, the primary drivers of the job growth were concentrated inhigher paying professional and business services as well as healthcare jobs, and a reboundof construction jobs may alleviate some concerns over a slowdown of the housing market.

    Payroll data remains solid enough to support economic growth despite the slight moderation.

    The other underlying jobs data was broadly steady. Wage growth rebounded on the month,supported by a growth in high paying jobs. While the unemployment rate edged up slightly,this was tied to an uptick in the workforce participation rate, and the U6-U3 gap measuringthe amount of part time employment shrunk to the recovery low of 4.7 ppt, which remainshigher than the pre-crisis levels of 3.7 ppt.

    Some Fed officials such as Cleveland Fed president Loretta Meester have recently givenhawkish comments, insisting that November’s meeting remains a live meeting. However,markets currently give only a 10% chance for a November hike, and just several days aheadof the election, lacking an overwhelming case to rush a rate hike, a surprise rate hike underYellen’s FOMC does not appear to be their modus operandi. With that said, the solid jobmarket, and a recent uptick in core PCE inflation support the case for a December rate hike,which remains our baseline scenario barring an unexpected downturn or external shocks.