US: Payrolls strong and above recent trend

In October, non-farm payrolls rose by a net 166 000, following a downwardly revised 96 000 in September (earlier 110 000) and an upwardly revised 93 000 in August (earlier 89 000). Consensus was looking for an increase by about 80 000. On a less volatile 3 month average basis, payrolls rose by 118 000, 94 000 and 85 000 in the most recent months, a slight acceleration in the creation of jobs. Once more, the outcome is a surprise and doesn??�t fit well with the other information about the economy. However, one cannot deny that the report is a positive and that also the Fed will see it like that. Nevertheless, we suspect that labour market conditions will deteriorate in the next months, even while we expected a more rapid deterioration.

There were a number of sector surprises. Payrolls at temporary Help Agencies, a very cyclical sector that leads the overall payrolls figures, unexpectedly jumped by 20 000, following a long string of losses. We think it is an outlier, because the jump would suggest that the labour market is making a turn for the better, something we don??�t buy in. Leisure and hospitality payrolls rose by 56 000 following already a 50 000 increase in September. This sector thrives on consumer discretionary spending and it would be highly unusual to see consumers now raising that kind of spending as higher energy prices and a lower confidence should show an opposite trend. Payrolls at financial activity rose by 2 000 following two months of a decline by each time 13 000. Given the current flow of layoffs news, we might see this sector losing more jobs in the near future. The rise in the number of teachers by 35 000, following already some strong months look suspicious. Some sectors like manufacturing (-21 000), residential construction (-21 000) and retail (-22 000) showed that the housing sector woes are having an impact.

Looking to other elements of the report, the diffusion indices were soft, as the overall index fell to 53.4 from 55.6, suggesting that the breadth of the gains was disappointing. Average Hourly Earnings softened to 0.2% M/M and 3.8% Y/Y from 0.3% M/M and 4% Y/Y previously. The Aggregate Hours worked, combinations of payrolls and the length workweek, rose 0.1% M/M, identical to August and September. The unemployment rate stabilized at 4.7%, but the details of the household survey were weak.