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October Nonfarm Payrolls

11/08/2013

This morning the Labor Department released the October nonfarm payrolls report. During the month of October the United States government experienced a shutdown from October 1 until October 16. Individuals who were not working during the Labor Department’s survey the week of October 6-12 were counted as “unemployed” even if they were to be paid retroactively once the shutdown ended.

Let’s take a closer look inside the October nonfarm payroll report…

  • October nonfarm payrolls rose 204,000, well above consensus estimates of +120,000
  • September nonfarm payrolls were revised higher to +163,000 from a previously reported +148,000
  • October private payrolls (Figure 1) rose 212,000, well above consensus estimates of +125,000
  • September private payrolls were revised higher to +150,000 from a previously reported +126,000
  • The unemployment rate was expected to rise to 7.3% and did just that, reporting at 7.3% up from September’s 7.2%
  • The labor force participation rate (Figure 2) fell from 63.2% to 62.8%, the lowest level since March 1978

 Other metrics inside the report…

 The underemployment rate rose to 13.8% from 13.6% last month

  • Average weekly hours worked were unchanged at 34.4; September’s figure was revised lower, from 34.5 to 34.4
  • Average hourly earnings rose 2.2%, below the estimate for +2.3%; September’s figure was revised lower from +2.1% to +2.0%

 Industries within the report…

 Manufacturing (Figure 3) added 19,000, the most jobs since February’s 23,000

  • Retail added 44,000 jobs, the highest level since June’s 45,000
  • The financial industry reversed two previous negative months, with 7,000 jobs added in October
  • Leisure and hospitality added 53,000 jobs
  • Government jobs fell 8,000

CAPITAL MARKETS IMPACT
As both the recent Chicago PMI and U.S. ISM manufacturing indices hinted at, the government shutdown did not have the negative impact being positioned by the media.

Investors should still expect the initiation of asset purchase tapering at the March 2014 FOMC meeting. However, this morning’s report does increase the probability of a possible earlier taper at the December 2013 FOMC meeting.

Additionally, recent economic data releases, both domestically and globally, along with continued strong earnings are consistent with my expectation for accelerating U.S. GDP growth in 2014. The U.S. 10-year Treasury yield (Figure 4) should rise, along with that growth acceleration toward 3.0% to 3.25%.

Figure 1 U.S. Private Sector Jobs, November 2012 to November 2013

Source: Bloomberg

Figure 2 Labor Force Participation Rate, 1948 to 2013

Source: Bloomberg

Figure 3 U.S. Manufacturing Sector Jobs, November 2012 to November 2013

Source: Bloomberg

Figure 4 U.S. 10-Year Treasury Yield, November 2012 to November 2013

Source: Bloomberg

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.