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NFP Recap: First US job decline in seven years, lower unemployment, higher wage growth

Friday’s US jobs report for September contained several rather dramatic surprises. The headline non-farm payrolls (NFP) number actually declined by 33,000 jobs, the first negative reading in seven years, due in large part to the impact of recent hurricanes (Harvey and Irma) on food services and drinking establishments. These businesses alone lost 105,000 jobs in September due to the weather-related impact. Markets had been expecting a lower-than-usual (but positive) reading at around +90,000 jobs. An encouraging aspect of the report, however, could be found in the unemployment rate, which ticked down to 4.2% against both prior expectations and the previous reading of 4.4%. Another positive surprise was wage growth – average hourly earnings jumped up to +0.5% against forecasts of +0.3% and the previous month’s +0.2%.

Overall, the jobs report for September was mixed, with substantial deviations from expectations in both directions. Since a significant impact from the hurricanes had already been expected, however, the decline in jobs was seen more as an anomaly rather than any negative indication of the US employment landscape. Indeed, Dallas Federal Reserve President Robert Kaplan stated to media on Friday, post-NFP, that labor markets are actually tightening despite the weak jobs data for September. Also, the rise in wage growth and drop in the unemployment rate helped to mitigate the negative headline outcome.

Because of these mitigating factors as well as the fact that markets had already discounted September’s anomalous weather impact, the immediate market reaction was dollar-positive and negative for gold. In fact, the market-viewed likelihood of a December rate hike by the Fed actually rose above 90% at one point after the data release. Amid these high expectations, and despite the large downside surprise in September job growth, the US dollar appears poised to resume and extend its recent recovery.

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