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Jobs growth in the US slowed sharply in October in an indication that the world’s largest economy is starting to cool, reigniting a rally in government bonds.
US employers created 150,000 new posts last month — less than forecast and barely half of September’s revised figure of 297,000. Economists surveyed by Bloomberg had expected a total of 180,000 new jobs for October.
The figures provided further fuel for a rally in US Treasuries, as investors bet that the slowdown in the labour market made it more likely that the US Federal Reserve will not raise rates further in coming months.
The S&P 500 was also up 0.8 per cent higher in late-morning trading, putting the stock market index on track for its best week in a year.
“This jobs report is . . . helping convince non-believers that this is very much the end of the rate hike cycle,” said Kristina Hooper, chief global markets strategist at Invesco. “We are very much in a disinflationary trend, the economy is cooling and the Fed does not have to hike rates again.”
Trading in futures markets after the data release signalled that investors now expect a rate cut in June next year, compared with their previous expectations of a cut in July. Traders also pulled back further from any expectation of a further rate rise this year.
The yield on the two-year US Treasury note, which moves inversely to price and tracks interest rate expectations, fell to a two-month low of 4.86 per cent.
According to the Bureau of Labor Statistics data, the US unemployment rate rose to 3.9 per cent in October, from 3.8 per cent in September. Average earnings edged 0.2 per cent higher, a slight slowdown from the 0.3 per cent increase in the previous month.
Economists said strike action by autoworkers had probably reduced October’s headline figure for new jobs by around 30,000 — but that underlying data still indicated that hiring had slowed.
The August figure for new jobs was also revised downwards by 62,000 to 165,000.
US president Joe Biden gave an upbeat response to the jobs data, highlighting that unemployment has remained below 4 per cent for 21 consecutive months, the longest stretch in over 50 years.
Jobs growth is an important indicator for investors and Fed rate-setters, who monitor the labour market for evidence that the central bank’s monetary policy tightening campaign is cooling the economy.
The Fed has raised interest rates from near zero in March last year to a target range of 5.25 to 5.5 per cent in an effort to bring down inflation.
But it held interest rates steady on Wednesday and along with other central banks is widely expected to keep borrowing costs at current levels for some time.
Wylie Tollette, chief investment officer at Franklin Templeton Investment Solutions, said Friday’s job report was “probably exactly what the Fed was looking for”. But he warned that the “market might be getting slightly ahead of itself”, arguing it was unlikely the central bank would cut rates “until the very end of 2024 or even possibly 2025.”
After the data release, the yield on the 10-year Treasury note, which moves in line with growth expectations, fell to its lowest level since mid-October, down 0.15 percentage points to 4.53 per cent.
Thomas Barkin, president of the Richmond Fed, told CNBC on Friday that it was not yet clear if interest rates had peaked, adding that the timing of potential rate cuts was “still a ways off in my mind”.
Dean Maki, chief economist at Point72 Asset Management, cautioned that the recent Treasury yield rally and rise in the stock market were easing financial conditions that “could in principle make the Fed more nervous about economic growth picking up again”.
Bond markets began this week’s rally after Wednesday’s Fed meeting, bringing about the biggest two-day fall in 10-year Treasury yields since the US banking crisis of early March.
Investors highlighted remarks by Fed chair Jay Powell that the central bank was “proceeding carefully” with future rate rises, which some took as a sign that borrowing costs have already succeeded in slowing down the US economy.
Additional reporting by Kate Duguid
