The nonfarm payroll data for September was below expectations (194,000 vs. 500,000) and private payrolls came in at the lowest amount in five months. Private payrolls were negatively impacted by the slowdown in services (smallest gain since January), driven by smaller contributions from Leisure and Hospitality. The labor force participation rate also declined again and remains 1.7% below pre-COVID levels.
Source: FRED.
Source: NDR.
Source: FRED.
The timing of the survey could have important implications for the lack of improvement, as it was based on results from the second week in September, just after the federal enhanced unemployment benefits expired. The drop-off in benefits is visible in the continuing claims data series.
Source: Hedgeye.
Our expectation is that payroll and labor participation data will likely start to improve in the coming months as workers are losing unemployment eligibility, deferments in consumer debt and eviction/foreclosure restrictions have ended, consumer savings are declining, and job openings remain elevated.
Source: NDR.
Source: FRED.
Market signals also continue to suggest that economic activity will improve in the coming months. 10-year Treasury rates have been increasing and are at the highest level since the beginning of June.
Source: Koyfin.
The 2s10s yield curve has been steepening and is at the highest level since mid-July.
Source: Koyfin.
High yield credit spreads remain near their cycle lows.
Source: Koyfin.
On the equity side, cyclicals like Energy, Financials, and Discretionary are outperforming while Real Estate, Health Care, and Utilities are lagging.
Source: Koyfin.
High beta stocks have also been outperforming, while quality and defensive stocks have been lagging.
Source: Koyfin.
Equity volatility has been declining, including small cap (RVX) volatility.
Source: Koyfin.
The CRB Commodity Index made a new cycle high and is at the highest level since the end of December 2014.
Source: Koyfin.
Oil volatility also continues to remain below 40 on a trend basis and has made lower highs on each increase.
Source: Koyfin.
If the economy continues to move in the direction that market signals have been trending, employment data should start to improve in the coming months as workers re-enter the workforce and start to fill open positions.
The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance. The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.
Senior Vice President, Investment Strategy
Boyd Watterson Asset Management, LLC