US jobs report weaker than expected
The US economy added 150,000 jobs in October, fewer than expected, and previous months were revised lower, suggesting the economy is not quite as strong as thought.
Economists had expected 180,000 new jobs. In September, employers hired 297,00 more people, less than the 336,000 previously reported, and in August, there were 165,000 new private sector jobs, revised down from 227,000.
The unemployment rate ticked up to 3.9%.
The dollar index, which measures the greenback against a basket of other major currencies, fell to a 10-day low.
Key events
Here’s more instant reaction. Daniel Casali, chief investment strategist at the wealth management group Evelyn Partners, said:
While there is increasing evidence that US job creation is slowing, it is unlikely to change the Fed’s plan to keep interest rates ‘higher for longer’ to address inflation in the near term.
Nevertheless, overall employment is still expanding by around 2% per annum and that should provide support for consumption growth. Other measures of labour activity are also indicative of a relatively healthy labour market. For instance, weekly initial job claims are a timely signal for the unemployment trend. Given this was recently reported at an historically low level, this implies there are fewer workers seeking unemployment benefits.
Similarly, the September reading for job openings (from the JOLTS survey) came in at 9.6 million, versus the pre-pandemic level of around 7m at the end of 2019. This shows that firms are still looking to hire. Indeed, the Manpower survey rebounded in the fourth quarter to show that a net 36% of firms were planning to hire in the 3 months, compared to 20% at the end of 2019.
Importantly, average hourly earnings from the payroll report are slowing and that should give the Fed some comfort that wage-driven inflation is coming under control. Though recent bumper wage deals agreed between the United Auto Workers’ labour union and major auto manufacturers is a risk to the overall inflation outlook.
US factory jobs declined by 35,000 last month while government jobs increased by 51,000.
Andrew Hunter, deputy chief US economist at Capital Economics, said:
The muted 150,000 gain in non-farm payrolls in October is another sign that the economy’s strength in the third quarter is likely to unwind in the fourth. With wage growth also continuing to slow, it is increasingly hard to imagine the Fed hiking interest rates any further.
Admittedly, recent strike action hit payrolls again last month, with 33,200 UAW (United Auto Workers) workers walking out during the October survey period. That helps explain the 35,000 fall in manufacturing payrolls, which will be reversed in November with the autoworkers’ strike now over.
That said, strikes can’t explain the declines in employment in transportation & warehousing, information and finance. Furthermore, payrolls are still being supported by growth in the non-cyclical government and health care & social assistance sectors – excluding those, payrolls rose by just 22,000 last month.
Finally, after a blip in September, the persistent pattern of downward revisions to past months has returned – with August and September payroll gains revised down by a cumulative 101,000.
The UAW union struck deals with the car manufacturers Ford, General Motors and Stellantis in the past week, ending the car worker strikes.
US government bonds rallied after the data, which showed employers hired fewer people than expected in October.
This pushed bond yields lower (yields move inversely to prices). The yield, or interest rate, on benchmark 10-year Treasuries fell 11 basis points to 4.55%, the lowest in three weeks. Two-year yields dropped 10 bps to 4.87%, the lowest since early September.
European bonds also rallied, as did sterling and the euro, rising 0.8% against the dollar to $1.2305 and $1.0714 respectively.
BREAKING: Non-farm payrolls come in at just 150K vs last week’s reading of 336K ⚠️
The forecast was for 178K
The unemployment rate is 3.9%
This comes after strong JOLTS data, a weak ADP reading, and unemployment claims staying low pic.twitter.com/JWkCySfNj8
— Markets & Mayhem (@Mayhem4Markets) November 3, 2023
US jobs report weaker than expected
The US economy added 150,000 jobs in October, fewer than expected, and previous months were revised lower, suggesting the economy is not quite as strong as thought.
Economists had expected 180,000 new jobs. In September, employers hired 297,00 more people, less than the 336,000 previously reported, and in August, there were 165,000 new private sector jobs, revised down from 227,000.
The unemployment rate ticked up to 3.9%.
The dollar index, which measures the greenback against a basket of other major currencies, fell to a 10-day low.
UK regulator closes investigations into Facebook Marketplace and Amazon Marketplace
Britain’s competition watchdog has closed its separate investigations into Meta’s Facebook Marketplace service and Amazon marketplace, accepting commitments from both tech companies.
The Competition and Markets Authority said Amazon’s commitments “help ensure that third-party Marketplace sellers can compete on a level-playing field and that UK customers get access to the best deals”.
Meta welcomed the move.
We welcome the CMA’s decision to close its investigation into Marketplace on the basis of the commitments offered by Meta to put in place systems and controls designed to confirm and validate that advertiser data from competitors is not used in Marketplace.
Ann Pope, senior director for antitrust enforcement at the CMA, said:
We have accepted Amazon’s commitments as they help thousands of independent UK sellers to compete on a level playing field against Amazon’s own retail arm. This should also mean customers get access to the best product offers.
The commitments secured from Meta mean the firm cannot exploit advertising customers’ data to give itself an unfair advantage – and as such distort competition.
Economists say UK economy ‘flirting with recession’
Tim Moore, economics Director at S&P Global Market Intelligence, which compiles the UK services survey, said:
A shallow downturn in UK service sector activity persisted in October as businesses struggled to make headway against a backdrop of worsening domestic economic conditions and stretched household budgets.
Forward-looking survey indicators suggested that service providers will continue to skirt with recession. The degree of optimism towards the business outlook was the lowest in 2023 so far, despite relief that interest hikes have taken a pause this autumn.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said:
The composite PMI suggests that the economy is flirting with a mild recession, but we continue to think that one will be narrowly avoided.
Unemployment rose slightly in the eurozone in September, according to the latest official figures.
The jobless rate rose to 6.5% from 6.4% in August, with just over 11 million people out of work including 2.2 million young people (under the age of 25), the EU’s statistics office Eurostat said. The youth unemployment rate ticked up to 14%. Across the EU, the overall unemployment rate was stable at 6%.
Martin Beck, chief economic advisor to the EY ITEM Club forecasting group, said:
Although October’s final services PMI came in slightly higher than September’s reading, it still signalled a modest contraction in private sector activity. The EY ITEM Club thinks GDP should still grow in Q4, helped by a fading drag from strike action in the public sector, but the pace of growth is likely to be marginal.
The Monetary Policy Committee will have had sight of October’s survey in arriving at its November interest rate decision. The picture of weak activity, easing cost pressures and falling employment painted by the latest survey will likely have contributed to the committee’s decision to keep Bank Rate unchanged again.
Optimism at UK service firms sinks to lowest this year
A closely watched survey has shown a slight reduction in service sector output as lacklustre demand conditions continued in October, and optimism worsened to the lowest level so far this year.
Services firms experienced another reduction in business activity, although the downturn was only marginal and slightly less marked than in September, according to the final reading from the monthly S&P Global and CIPS purchasing managers’ index survey.
Survey respondents typically cited cost of living pressures, high interest rates and weak consumer confidence as factors holding back customer demand. Job shedding continued in October, reflecting lower new orders and uncertainty about the business outlook. The degree of optimism among services companies regarding year ahead growth prospects was the lowest in 2023 so far.
At 49.5 in October, the headline business activity index was up slightly from 49.3 in September and above the earlier ‘flash’ reading of 49.2. However, it remained below the crucial 50.0 no-change threshold for the third month running. Lower volumes of service sector output in recent months contrast with moderate growth earlier this year (the index averaged 53.3 during the first half of 2023).
Banks must guard against ‘larger and faster’ bank runs, says BOE’s Hauser
Regulators need to ensure that banks have adequate financial buffers as advances in technology increase the risk of bank runs, a senior Bank of England official has warned.
Andrew Hauser, the central bank’s executive director for markets, said challenges facing central banks included
how to ensure that banks’ liquidity insurance remains appropriate as technology change increases the risk of larger and faster deposit runs, of the kind seen this spring in the US.
The sudden collapse of the Californian lender Silicon Valley Bank in March caught regulators by surprise, as people rushed to get their money out using online banking services.
In a speech at a conference organised by King’s College in London, Hauser said central banks need to assess where their balance sheets should settle, after expanding them massively over 15 years of emergency bond buying,
as monetary policy makers return inflation – which remains far too high – to target, through a combination of higher interest rates and unwinding Quantitative Easing (QE) and other ‘unconventional’ policy interventions.
A third challenge is:
how to ensure the stability of the financial system as a whole in the face of the growing incidence of systemic liquidity shocks, not just in banks but increasingly in non-bank market finance too.
You can read Hauser’s full speech here.
In a separate report, the FAO stuck to its forecast for world cereal production of 2.8bn metric tonnes this year, up 0.9% from 2022.
Global wheat production in 2023 is forecast at 785.1m tonnes, 2.2% (18m tonnes) lower than last year’s level.
Turning to 2024, winter wheat plantings are underway across the northern hemisphere and area growth is expected to be limited, reflecting softer crop prices this year.
In the United States, drought conditions have partially dissipated in key producing states, and with above-average rainfall forecast for the next months, weather conditions appear to be more favourable for early stages of the 2024 crop; plantings have progressed at an average pace as of October.
In the European Union, comparatively dry and warm conditions are favouring sowing of the winter wheat crop, with plantings already nearing completion in northern countries.
In Ukraine, the continuing effects of the war, including constrained access to fields and low farm-gate prices, along with less-than-ideal weather conditions, are seen engendering a reduction in the wheat area.
The FAO Meat Price Index fell 0.6%, the fourth monthly decline, leaving it 3.4% below its value a year ago.
In October, international pig meat prices fell for a third month, driven by persistently sluggish import demand, especially from some East Asian countries, while some leading suppliers had high exporting capabilities.
By contrast, world poultry meat prices rebounded slightly, as avian flu outbreaks continued to constrain supplies from several world leading suppliers and consumer demand stayed robust, because poultry is more affordable than other meat.
International beef and lamb prices also increased slightly, reflecting robust import demand from some leading importers, despite ample supplies of beef from Australia and Brazil and lamb from Oceania.
The FAO Sugar Price Index dropped 2.2% in October after two consecutive monthly increases, but remained 46.6% above the level a year earlier.
The decline was mainly driven by strong production in Brazil, despite the negative impact of rains on sugarcane crushing in the first half of October. The weakening of the Brazilian real against the US dollar and lower ethanol prices in Brazil also weighed on world sugar prices. However, persistent concerns over a tighter global supply outlook in the recently started 2023/24 season, together with shipment delays from Brazil, capped the declines in world sugar prices.