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Alvin Liew from Global Economics & Markets Research at UOB Group assessed the recent figures from US Non-farm Payrolls for the month of September.

Key Quotes

“Sep’s employment situation had something for everyone to chew on: low employment creation, lower wage growth & lowest unemployment rate in 50 years. For a second straight month, the US Labor Market report on Fri (4 Oct) showed US nonfarm payrolls increasing by a lower-than-expected pace, this time by 136,000 in Sep (Bloomberg median forecast: 145,000). That said, some cheer was added to the employment situation with a 45,000 upward revision of payrolls for the preceding two months; Aug’s payrolls were revised up markedly by 38,000 to 168,000 (from 130,000) while Jul’s payrolls were revised again, but this time higher by 7,000 to 166,000 (from 159,000). Job creation is averaging at 161,000 monthly so far this year, below the 223,000 monthly average recorded for 2018. And while the private sector was again mainly responsible for US jobs creation with 114,000 in Sep (lower from 122,000 in Aug), the US government employment continued to trend up and added 22,000 jobs in Sep”.

“Within the private sector, job creation in services industries (109,000) remains the driving force while goods-producing industries added just 5,000 jobs which was largely due to construction (+7,000) while manufacturing unexpectedly lost 2,000 jobs, leading to concerns that the on-going US-China trade dispute is negatively impacting manufacturing hiring outlook”.

US unemployment rate unexpectedly eased lower to a fresh 50-year low of 3.5% (from 3.7% in Aug), lowest since Dec 1969 even as US labor force participation rate stayed steady at 63.2% (unchanged from Aug). US wage growth came in below market expectations and was flat at 0.0% m/m from 0.4% m/m in Aug. Compared to a year ago, wage growth slowed to 2.9% (from 3.2% in Aug), well missing the Bloomberg median forecast of 3.2% y/y and importantly, it was the first time US wage growth drop below 3% since Oct 2018″.

“Even though the number of jobs created and wage growth both missed expectations in Sep, the numbers do not point to recession but it does flag concerns about the sustainability of US domestic private consumption to support US economic growth. What the subdued wage inflation and slower job creation pace implies is that it will reinforce expectations for the Fed to cut rates further in Oct, as the Fed would “act as appropriate” to sustain the US economic expansion”¦ We believe the ongoing trade dispute and the recent soft batch of economic & jobs data will “push” the Fed to take on more “insurance” rate cuts in 2019. After the Sep cut, we project two more 25bps rate cuts in the 29/30 Oct 2019 FOMC and the 10/11 Dec 2019 FOMC, to bring the upper bound of the FFTR lower to 1.5%, well below the 2% inflation target. We currently do not factor in further cuts in 2020″.