At first glance, this morning's U.S. non-farm payrolls report failed to impress the market. Yes, job growth was basically in line with expectations especially when taking into account the 20k more jobs that were added to the October report and Yes, the unemployment fell to 8.6 percent, its lowest level since March 2009. However with such a steep decline in the jobless rate, we would expect to see a much stronger reaction in the U.S. dollar and risk appetite. Risk rallied the minute non-farm payrolls were released but reverted back to its pre-NFP levels quickly thereafter. With most of leading indicators for non-farm payrolls stacked so heavily in favor of stronger job growth, speculators were front running the number and when payrolls fail to rise by 125k or more, they were sorely disappointed. Even though 125k was the consensus forecast, the whisper number was closer to 150k. Yet the lack of enthusiasm to today's non-farm payrolls report is still surprising considering how much the unemployment rate declined. There are flaws to the household survey which generates the unemployment rate including a smaller sample set and greater volatility but at the end of the day, the decline is large enough that it should not be ignored because politicians will point to the number and pat themselves on the back for a job well done.
According to the non-farm payrolls report, a total of 120k jobs were created in the month of November, 140k of which was in the private sector. The manufacturing sector added 2k jobs which was less than expected. The big story was the unemployment rate which fell to 8.6 from 9.0 percent and the reason why we believe there is some validity to the drop in the jobless rate is because the U-6 unemployment rate which is a much broader measure of unemployment also declined to 15.6 percent from 16.2 percent. Unfortunately Americans are making less with average hourly earnings falling 0.1 percent, the hours worked remained the same at 34.3.
The main takeaway from today's report is that the labor market is slowing recovering but the pace of recovery is still not strong enough to remove the risk of a double dip in 2012. As usual the report is subject to revisions and the unemployment rate could easily spike back up in the coming months - remember, one month does not make a trend. Although Federal Reserve officials will be relieved to see the jobless rate decline, the level of job growth and the labor market in general is not healthy enough for them to abandon their plans to increase transparency in monetary policy next month. They will still be looking to change the language in the FOMC statement to ensure that investors realize that they will do all it takes to keep rates low for an extremely long time.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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