Strong October growth in US jobs may trigger the Fed to hike its policy rate in December

Strong October growth in US jobs may trigger the Fed to hike its policy rate in December

Total nonfarm payroll employment increased by 271,000 in October, and the unemployment rate was essentially unchanged at 5.0 percent, the U.S. Bureau of Labor Statistics reported today.

American jobs growth jumped in October after a weak summer, a result that had yields for 10yr  US Treasury bonds rise sharply to 2.33%, up +9 bps.

Equities on Wall Street dropped sharply on the news because it appears to make a December rate hike by the Fed much more certain. However, the 'stock tantrum' appears to have run out of steam as the trading session wears on, with the overall decline now fairly modest. In fact, both the Dow and the NASDAQ are now posting gains for the session; it is only the broader S&P500 which is still lower.

Yield gains in the US usually get mirrored here, although in the past few New Zealand sessions we have had wholesale yield falls as the US yields have been rising. Local economic prospects have dimmed recently, explaining the divergence.

But today's strong US data may mean that the RBNZ will get the same effect by holding its policy rate if the US does in fact start 'liftoff' on December 17 (NZT). Graeme Wheeler would need to take a risk on that however; the RBNZ MPS is a week earlier on December 10.

The gold price fell sharply on the news and has ended up well below US$1,100/oz.

The NZ dollar weakened sharply against the greenback as did almost all other currencies.

These useful charts show that today's result is unusual in the longer term trends.

As Neil Irwin of the NY Times said:

The job market numbers for September were pretty terrible across the board. Now the results are in for October and they’re pretty terrific across the board.

Of course there is no reason to think there was a radical yo-yo effect that caused the economy to add a mere 137,000 jobs in September but a whopping 271,000 in October. Similarly, there is no reason that the number of people who neither had a job nor were looking for one spiked and then fell, or that pay increases came to a halt around Labor Day only to begin soaring again in the run-up to Halloween. More likely the United States job market has been improving at the same relatively gradual pace the last couple of months and, frankly, all year.

Instead, what we’ve probably just witnessed is a classic study in the challenges of making sense of the fortunes of a $17 trillion economy with 157 million workers in real time.

American hourly earnings have risen +2.5% year-on-year to October, another factor that may encourage the Fed to go now rather than waiting even longer.

Countering that is their participation rate which was stable in October at 62.5%, and which by New Zealand standards is quite low. It is down from 63.0% a year ago.

We welcome your help to improve our coverage of this issue. Any examples or experiences to relate? Any links to other news, data or research to shed more light on this? Any insight or views on what might happen next or what should happen next? Any errors to correct?

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Fed move almost a certainty for December. Not so good for dairy however.

this will be there third opportunity this year to move off zero.
any one got any ideas on what they will use as a reason not to this time

oh say evidence?

"The arguments against an early rate rise remain compelling, and shouldn’t be abandoned based on one month’s data."

The Fed may wish to address the state sponsored consumer debt inflation binge.

If there was any confusion where all those soaring new car sales are coming from, we now have the definitive answer: moments ago the latest consumer credit data for September was released, and surging by $28.9 billion - a 4.9% jump Y/Y - not only did this smash expectations of a "modest" $18 billion rise, this was the biggest monthly increase ever! Read more

But I guess the election cycle choices are few, given - The labor force, for example, may have risen by more than 300k in October but remains about 150k below January. Read more

The private, corporate and financial parasitic binge is far more of a concern and that doesnt rely on the OCR to fix.

Debt creation is a form of economic pollution. Heating a house or fueling a car is necessary, yet the carbon emissions are harmful to the climate. Lending a family money to buy a house is socially useful, but too much mortgage debt can make the economy unstable. Read more

Might I suggest a solution is sought sooner than later.

The biggest problem is the investor, corporate and financial malfeasance, not joe buy a home bloggs.

We shall see. Mr Adair is a helicopter money addict and a hypocrite - read another version of the story.

zero hedge? bound to be truthful then.

wasnt that what you just did with the "hyprocrite" post?

"And I will argue that all the really important issues are political, since the technical issues surrounding monetary finance are already well understood (or should be) and that
the technical feasibility and desirability in some circumstances of monetary finance is not in doubt"

So its for the Govn to sort and when the Govn does not, that is a political failure not a monetary failure. The financial whizz kids primarily responsible for this mess should have been prosecuted in 2008 and jailed, they were not. Why not? because,

a) there is so little real economy left that without the parasitic world wide behavior of the financial sector sucking money out of the edges (developing nations) and the public (main street) and into "wall street" (which then gets taxed a bit) the country would be bankrupt.
b) because the parasites have bought or positioned politicians to make sure that doesnt happen
c) The illusion of wealth being created by a housing ponzi scheme by said parasites there would be no economy keeps the pollies in power.

Well reading his piece gets you the context of whathe is saying which seems Mr Adair sees the bigger picture, while zero hedge sees what it wants to see. Hence maybe the hypocrite comment, but then if you read what he is saying as backwards to what he is actually saying, I can see that. You? well it certainly appears to not be the former as you have proven time and time again with previous posts. ie I have little doubt you are an expert in the/a financial field however that doesnt mean that translates into a broader view, though I am not sure if its self-imposed blinkers or Machiavellian yet.

oh and it is still not compelling to move early when you have let the binge go on got 7 years.

When is it a good time to get off the "drip".

When you have fixed the reason you were put on it, which in this case is killing the parasites you are infested with..

my pick is they will not raise, just wondering what the reason will be
in saying that they could have got to.25 and held, but like all RB they like to be behind the curve

what curve?

Most the jobs added were poor quality going to 55-69yr age group.
The important money earning 25-55yr age group actually declined some 35,000. Infact males in this age group jobs declined 119,000.
So average joe headline is getting tricked again into believing a rate hike is comming in dec.
It is not.
With kiwi commentators regurgitating these headlines, NZ almost deserves to be duped.

I almost think the financial parasites are shorting the NZ economy ie hoping it will collapse so they can make money.

Over gearing non-productive residential real estate investment, thus crowding out productive asset funding is a prime example of such behaviour..

No it isnt. When energy got too expensive to make a good the developed world switch to finance to earn money ie productive assets just didnt give the return expected/demanded.


If productive assets gave a decent return ppl would invest in it. ie you would pick the action/investment that gives you the best return no matter what it is or the cost of borrowing matter. So ppl have decided the best return is gambling there is a bigger fool. The actual OCR doesnt matter to a gambler as long as the returns are big enough to guarantee a tidy profit for no effort. What a low OCR does do is help sustain real businesses/SMEs struggling in an environment where Govn's let finance run riot.

Ok, I'll bite. How does a) the 'smart money' short the 'nz economy' or b) ordinary investors do it ? I'm interested in the actual mechanisms rather than just high-level generalisations.

Maybe try reading Forbes?

"All signs point to serious trouble for the Chinese economy. The best ways to play a China downturn: short-selling Australian banks"

That was the generalisation I was trying to avoid. How do you actually 'short' the Aussie banks? I thought shorting was entering into a contract to sell something you don't own for delivery in the future (so you can buy it cheaper just before you need to settle).

What I want to know, is how you do that? (Is it even legal in NZ or AU ? or anywhere else for that matter?) Yes, I read The Big Short. But those sort of contracts involve specialist derivative contracts in the US market only I think. Do they have AU bank paper?

David Chaston

About 3 years ago I posted a comment here about short selling on the ASX
Yes - it is legal - quite simple - you need an account with an AU Broker and have to put up 20% of the value of the transaction as collateral and they will do the deal - there is the risk of a margin call or increased collateral - you can short sell any of the stocks listed on the following approved list - it's simply the reverse of a buy - if they don't have the stock in-house to cover your sell they "borrow" the stock from any number of willing superannuation funds who rent their stock out
The list shows the level of shorting on each of those stocks and is updated daily

Thanks. Appreciated.

Know anyone doing this? What is the time frame of the trade? And how things have worked out for any contracts that have concluded by now ?

No - don't know of anyone doing it at the moment - with electronic dealing we no longer have the same level of interaction with brokers we once had

When I read of a big US operator shorting the AU banks I'm inclined to believe it

I guess I am still Series 7, 3 and possibly 63 registered in the US and from memory this explanation and the links will suffice for most. I never traded stocks professionally, in the US, but S&P client futs spread trading against treasury futs had minimum regulatory requirements.

That link has this detail:

ASX     Product/  Reported Gross  Issued   % of issued capital
Code    Class     Short Sales(a) Capital(b)  reported as short
                  ASX + CHI-X                    sold  (a)/(b)
ANZ     FPO       4,859,083       2,902,714,361         .16
CBA     FPO         982,194       1,707,544,714         .05
NAB     FPO       2,424,281       2,625,764,110         .09
WBC     FPO       5,267,158       3,183,907,786         .16

There are 368 companies on that list, but no AU Govt securities.

Now we need a reader to show how you short "the NZ economy" ...

LOL. Easy - on a collective basis sell NZD/USD.

Not that I trade them, but I guess there is an illiquid reference Aussie government debt futs contract.

Kima Capital anyone? "Positioning for a recession? Short the banks.

A Hong Kong hedge fund is building up short positions in Australia's big banks, expecting them to be hit hard if Australia's housing sector falters, believing the country is destined for a recession.

Kima Capital portfolio manager Alex Wallis said the outlook for the Australian economy was bleak as some unfortunately timed events had conspired with the commodities boom unwind."

unfortunately, for NZ, the RBNZ has allowed unlimited expatriation of NZ bank profits to their Australian owners - a one way street - and also provided backing to the Aussie banks by holding NZ depositors at direct risk via OBR in this country.

It's quite a different situation with Australian depositors who are protected against bank failures there.

So knowing this and expecting an OBR in NZ you dont leave your capital in a bank then surely? Also if there is an OBR event the shareholders will take the losses as well if not first? The shareholders are then the OZ banks? Surely then why should a NZ Govn bailout the OZ banks and shareholders? Now it maybe the case that NZ depositors should have a limited protection, say to a max of $100k but if someone wants that insurance policy then they should be paying a premium for it.

NZ is an exception with lack of bank deposit protection. In Australia, there is $250,000 per bank deposit protection. A little paper work and a couple can have $500,000 per bank protection against banking mis-management, and have this at 100 or so financial institutions which are regulated by the RBA. The RBNZ chooses a different (unique in the world) course which leave NZ depositors the ones at most risk to suffer. Yes, with connections you can open an Australian bank account and get the protection - which was why NZ rushed the ill-managed (by Treasury) deposit insurance program under Cullen during one weekend at the start of the GFC. A shame it was so ill-managed and ill-regulated letting South Canterbury Finance take the NZ taxpayers for a ride.

its not that easy to open an aussie bank account whilst outside Australia now, they have really tightened up on the ID side of things.
in saying that its only a plane ride there and back and for the price your money is more protected than here

"banking mis-management" so by having protection, this is a classic piece of moral hazard. So their money is in effect guaranteed by the tax payer and they have to do no work to get free insurance on their gambling. How is this fair btw?

Not "most" it means the tax payer does not have to step in and pay for others losses for no gain. So I fail to see why by you not taking due care I should be guaranteeing your money.

All depends on what you read or who you choose to believe. Just on Xtra yesterday.

Given his success rate on gold, not sure. Mind you a broken clock is right twice a day.

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