Market Musings 061024: A Payroll Present
Summary:
US recession fears calmed by surprisingly strong US non-farm payroll report on Friday
Sharp reaction in US bond yields, the 10-year Treasury yield rising to 4.0%
Israel-Iran missile strikes raise tensions, oil prices as geopolitical risk premium rises
US infrastructure spending continues to be a strong investment theme
Tin, Copper and Industrial Metals generally get China stimulus-related boost
Question marks over the speed and depth of the decline in the US economy have led several commentators to forecast recession (a prolonged period of economic contraction) in the year ahead. Key to this was the rise in the US unemployment rate, which has climbed from a mid-2023 low of 3.4% to 4.3% as of July. Employment is a classic late-cycle economic indicator - and if employment were to fall, then consumption would also suffer and recession would follow.
Friday’s non-farm payroll data for September was therefore a closely-watched report, with economists forecasting on average a gain of 140,000 jobs in the month. In the end, the September non-farm payrolls rose by 254,000, far better than the forecast of even the most optimistic economists. The payroll numbers for the previous months were also revised higher to show a better overall trend in employment gains, together with a decline in the unemployment rate to 4.1%.
September US employment gains were much stronger than expected
I am very focused on the employment level in the residential construction sector (housebuilding), as this is a good early warning signal for the trend in US employment as a whole. The good news here is that residential construction employment continues to rise, suggesting that construction companies are hiring rather than laying off employees.
Focus on residential construction “canary in the coal mine”
With the decline in interest rates, we have seen the start of a recovery in the construction sector as mortgage demand has begun to return. We have to hope that this rising mortgage demand will translate into greater demand for houses, which will then support construction sector activity - a very important segment of the overall economy.
After hitting a recent low at 3.6%, US Treasury bond yields rebounded to 4.0% on Friday as expectations for the path of future Federal Reserve interest…
