This data increases the possibility of FED's rate hike in December according to many economists. Like I noted in previous posts, as nonmanufacturing PMI's employment and new orders sub index were robust, labor market in U.S. seem very solid.
Main features are below;
1) Payroll number shows U.S. labor market is not on full-employment condition yet. This means additional improvements and acceleration are possible for next year.
2) But, unemployment rate was down to 5.0% and U-6 unemployment rate declined further by 0.2%p to 9.8% which is relatively low since financial crisis. 1) and 2) maybe signal the possibility that U.S. economy starts to overcome the structural problem in labor market, even though this view could be exagerated.
3) Apparently, however, wage seems to get benefits from tailwind of labor market condition. Monthly gain of 0.4% and yearly gain of 2.5% are enough high to expect reflationary pressure over next period. Infact, YoY 2.5% is the highest level since mid 2009.
Especially with firm productivity as I noted in previous post, this may point possible inflation scenario comes somewhat quickly rather than deflation. In fact, as I commented previously, the inflation is not in line with labor maket condition. But, under current economic environment, upside potential for wage growth could signal unexpected inflationary pressure for coming months or quarters.
Right after releasing NFP data, U.S. bond market reacted to yield curve flatten especially in 5s30s which could mean longer-term economic condition maybe deteriorate as FED fund rate hike comes earlier. But, to end of daily market, 30 year yield rose almost like 5 year tenor at last. I think market, which has expected deflation scenario, starts to fear the reflatioary movement.
And there were some meaningful movements in global financial markets.
1) As I noted, U.S. yield curve was flatten a very little bit only.
2) German bund yield curve was bear steepen as 10 year yield rose by almost same with UST.
3) USD index, DXY, rose to the highst level since April this year, as EUR/USD plunged under 1.08 level.
I hold my main investment strategy in the global aggregate bond fund.
But, I change a view that EUR depreciation is in line with spread widening between UST and Bund under the expectation of monetary policies divergence.
As a member of ECB said infationary condition in Euro area improves from previous forecast, although EUR is depreciated against USD, long-end tenor yield in Euro area's gov't bond could soar. So, I have not to hedge my short Euro-area bonds position as short EUR against USD.
| OCT | SEP | AUG | YoY | 2014 | |||
|---|---|---|---|---|---|---|---|
| Payroll Employment | 271 | 137 | 153 | 1.9% | 1.9% | 1.7% | 1.7% |
| Previous | -- | 142 | 136 | -- | -- | -- | -- |
| Manufacturing | 0 | -9 | -19 | 0.5 | 1.4 | 0.8 | 1.7 |
| Construction | 31 | 12 | 8 | 3.5 | 4.8 | 3.7 | 2.1 |
| Private Service Producing | 241 | 159 | 146 | 2.5 | 2.2 | 2.2 | 2.2 |
| Government | 3 | -12 | 28 | 0.5 | 0.0 | -0.3 | -0.8 |
| Average Weekly Hours - Private Sector | 34.5 | 34.5 | 34.6 | 34.6 (Oct.'14) | 34.5 | 34.5 | 34.4 |
| Private Sector Average Hourly Earnings (%) | 0.4 | 0.0 | 0.4 | 2.5 | 2.1 | 2.1 | 1.9 |
| Unemployment Rate (%) | 5.0 | 5.1 | 5.1 | 5.7 (Oct.'14) | 6.1 | 7.4 | 8.1 |
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