US jobs data obscures future weakness
Markets were positively surprised by better than expected job growth in the US in September, but we would resist the urge to celebrate. The pace of job creation remains woefully inadequate to improve the US employment outlook. More ominously, a pair of leading indicators suggests labor markets may actually begin to deteriorate in the months ahead. The employment index of the September ISM non-manufacturing index fell to 48.7, below the critical 50 expansion/contraction line. A move below the 50 level is typically associated with monthly job losses, indicating a potential negative number for the Oct. jobs report. Also, the September Challenger survey of job cut announcements surged to 212% YoY, led by cuts at the US ’s largest bank and by the US military. While military lay-offs don’t reflect economic weakness, but rather budget cuts, it does add to further headwinds for job-seekers. While the September US jobs data lessen the potential for an imminent double-dip recession in the US , and are thus good for risk sentiment, the writing on the wall suggests serious risks remain to the near-term US outlook. The data reinforces our view we may be entering a period of consolidation ahead and that risk assets may be worth a buy on dips and a sell on rallies.
Brian Dolan is chief currency strategist at www.FOREX.com.
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