iTrust Daily Insight

iTrust Daily Insight
Edition 10.4.2019

October 4, 2019: Today it’s all about Job and Wage Gains

Market data as of about 6am PT, 9pm ET

  • Bitcoin:  $8,183 (down 16%+ in last 2-3 weeks) (Source: Coinmarketcap.com)
  • Digital currency price movement today: mixed (Coinmarketcap.com)
  • Number of digital currencies with market cap over $1 billion: 12 (Coinmarketcap.com)
  • Market Capitalization of Bitcoin: $147.0 billion (Coinmarketcap.com)
  • Gold “F” futures contract: $1508 (source: Yahoo Finance)
  • Copper “F” futures contract: 2.5350 (Yahoo Finance)
  • Oil “F” futures contract: $52.97 (Yahoo Finance) 
  • DJIA: $26,201  (yesterday close; futures imply a positive open) (Yahoo Finance)
  • S&P 500: $2,910 (yesterday close; futures imply a positive open) (Yahoo Finance)
  • FTSE (main London stock index): 7,132 (up about 0.7%) (Yahoo Finance)
  • Hang Seng Index (Hong Kong): 25,821 (down about 1.1%) (Yahoo Finance)
  • Probability of 25 bps cut at Oct 30 meeting of US central bank (Fed FOMC): 82% (down 8 percentage points) (source: CME Group’s “CME Fed Watch Tool”)
  • Probability O/N rates are only 25 bps lower than now after Dec 11 FOMC meeting: 48% (up 3 percentage points) (source: CME Group’s “CME Fed Watch Tool”)
  • Probability O/N rates are 50 bps lower than now after Dec 11 FOMC meeting: 42% (down 8 percentage points) (source: CME Group’s “CME Fed Watch Tool”)
  • US 10 year Treasury yield: 1.549% (up 1 bp) (WSJ.com)
  • US 2-10 yield difference: +0.12% (i.e., positively sloped — normal — yield curve) (WSJ.com)

Today’s big news:

Today the US Bureau of Labor Statistics (BLS) announced its monthly “jobs report”.  Wall Street-published-economists were collectively expecting 145,000 new jobs to have been added in September.  The BLS said 136,000 jobs were added — obviously slightly lower than expected — but the unemployment rate declined to a 50 year low to 3.5% (from 3.7% previously).  Among the 96.5% of the population with a job, average hourly earnings fell by 1 penny per hour to $28.09 per hour — an increase of 2.9% over the last year.

Commentary on the jobs report:

Revisions to previous months’ data plus the new jobs created in September caused the unemployment rate in the US to fall to 3.5%.  With retail jobs threatened by the decline in “brick and mortar” retail and manufacturing ISM data pointing to an impending slow-down in the manufacturing sector, the steady hourly wages number is important.  Workers are still making real wage gains (ie gains higher than inflation) which can sustain continued spending and saving.

The civilian labor force is now 164 million people in the US.  Historically, the civilian labor force in the US grows by about 1% per year.  If this historical increase stays the same going forward, the US needs to add about 1.64 million jobs per year to keep the unemployment rate unchanged at 3.5%.  1.64 million jobs per year is just under 137,000 jobs per month.

Today’s unemployment report points to a “goldilocks” situation — not too hot and not too cold.  The number of job gains in September was exactly in line with what is necessary to soak up new entrants into the labor force.   Going forward, job market data will be distorted by temporary hires by the Census Bureau to count the population in 2020.  Those workers will stop working in mid 2020.

Commentary on ramification for financial markets:

Today’s jobs market data release is mixed — the unemployment rate is now at 3.5% — which creates a likely situation — all else equal — for sustained wage growth as employers compete to hire workers.  As the same time, though, futures contract market participants are seeing this data and reducing the implied probability the Fed will reduce interest rates two more times this year (see data above).  

Gold and bond prices will likely be little changed given that jobs gains are fighting against the headwinds of Brexit, the protests in Hong Kong and continued trade negotiations between the US and China.

Equity markets will likely be slightly higher as companies can expect “more of the same” from the very strong US economy.

Tim Shaler is Chief Economist of iTrust Capital.  He is a published Real Estate economist, was a portfolio manager and asset allocation expert at his previous firms and is an adjunct professor at Webster University. His MBA (Finance) and MA in Russian Economic History are both from the University of Chicago.

For all media inquiries, please contact Blake Skadron at b.skadron@itrustcapital.com.

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