Non-farm payrolls have been stable
Job additions, represented by non-farm payrolls, have stabilized after the shocker in May 2016. The mining sector has been dragging on job additions for quite some time, hurting stocks such as Alcoa (AA), Nucor (NUE), and Steel Dynamics (STLD). However, the May report displayed a much broader impact.
Though non-farm payroll additions for the last two months have been lower than the 12-month average leading up to September 2016, they’ve still exceeded 150,000 in both months. From June to September, a total of 849,000 jobs have been added, with additions in June being the strongest this year.
In the November 2016 monetary policy statement, policymakers observed that “the labor market has continued to strengthen,” adding, “Although the unemployment rate is little changed in recent months, job gains have been solid.” In the September statement, policymakers added, “on average” after the word “solid” in the above-mentioned statement.
Nearing full employment
There’s been a debate regarding how close the US job market is to full employment. It’s generally agreed that the labor market is quite close to full employment, but there’s a difference when it comes to other metrics. Some policymakers believe that the labor market is ripe for a rate hike, while a few others are of the opinion that slack remains in the labor market that could hold it back from reaching full employment.
Apart from labor market slack, wage growth could also welcome some improvement. Though wage growth is acceptable, it’s far from being in robust health. A higher increase in wages would not only be good for stocks (QQQ) and consumer spending, it would also help to increase inflation and related products (TIP).
Watch for the non-farm payrolls report
The non-farm payrolls report for October 2016 is scheduled to release on November 4, 2016, and investors should watch the numbers closely. Job additions can be expected to be a bit weak, according to the ADP private employment report, which showed that 147,000 jobs were added in October—lower than expected. The forthcoming release and December’s release will directly affect any potential rate hike.
The rate hike in December may not be set in stone. In the next article, let’s see how the next president could shape the future of monetary policy in the United States.