US: Fully ignore jobs, its wages that matter - Scotiabank

Derek Holt, VP & Head of Capital Markets Economics at Scotiabank, suggests that rates markets are correctly paying more attention to the US wage figures than the headline jobs number in his opinion.

Key Quotes

“Headline jobs are likely distorted by weather effects with convincing evidence I’ll point to in a moment. Wage growth that is accelerating is a hawkish signal to the Fed and the only thing worth paying attention to here. At the margin, wage figures like this will bolster the Fed’s bias to view soft wage and inflation figures as a transitory phenomenon.”

“Wages are up 2.9% y/y which is back to being tied to peaks that occurred late last year and early this year which in turn was the fastest pace of wage gains since 2009. An eight year high in wage growth will not go unnoticed by the Fed.” 

“The best reason to ignore the change in nonfarm payrolls is that there has only been one other time when the gap between the job change reported by the household survey versus the nonfarm payrolls report was as large as it was last month. Since 1950, the widest gap in job changes reported by the two companion reports occurred in January 2000 but last month was the second widest on record. 939,000 jobs were created according to the household survey versus the 33k jobs that nonfarm reported to have been lost. That's always to be viewed suspiciously, but it says fairly convincingly that households are totally unaware of the job losses that nonfarm reported. This may point to a payrolls data quality issue perhaps including reporting shortfalls.”

“Revisions were a net negative at -38,000 jobs despite an upward revision to the prior month.” 

“The unemployment rate fell because it is derived from the companion household survey. That household survey registered 906,000 jobs created in September versus a 575,000 rise in the size of the labour force. A bigger rise in the number of folks who got jobs than the rise in the number of people looking for them led to a lower UR.”

“By sector, private jobs were down 40k and public sector jobs were up a touch. Goods sector jobs were up 9k, while services employment fell by 49k.”

“Aggregate hours slipped a touch by 0.1% m/m which isn’t at all unusual during weather events.”