Market Overview

Non-Farm Payrolls Rise in October, Economy Adds 171,000 Jobs

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The Bureau of Labor Statistics released its monthly employment situation report Friday showing that Non-Farm Payrolls increased by 171,000 jobs in October and revisions added an additional 85,000 jobs, greater than estimates of an increase of 125,000 jobs on the headline number. The unemployment rate rose to 7.9 percent from 7.8 percent.

S&P 500 futures were flat heading into the release but jumped higher by about five points after the release to 1,427.60. Also, the 10-year Treasury yield increased and the USD/JPY, the most susceptible currency pair to price swings due to economic releases, jumped from near 80.30 to 80.60 on the release. As yields increase in the U.S. and the economy improves, investors sell the yen against the dollar in search for higher yields and safer returns. Gold slipped below $1,700.00 per ounce on the COMEX as hopes of further QE from the Fed were dashed by the stronger than expected jobs growth.

Manufacturing jobs were rather strong in October, adding jobs after consecutive months of job losses. The ISM Manufacturing Index and its employment sub-index hinted that this number could improve and it did. However, average hourly earnings and the average workweek remained flat, meaning employees are not seeing wage nor hours growth.

Boston Properties (NYSE: BXP) CEO Mort Zuckerman in an interview with Bloomberg TV said that although the data was stronger than expected, adding 171,000 jobs is not nearly enough to escape the unemployment crisis that the U.S. faces. He added that the economy needs to add 150,000 jobs per month just to account for the new entrants to the workforce and so an increase of 171,000 is not much higher than that limit.

Economists are already increasing expectations for the November release due out in one month following the effects of Superstorm Sandy. Although the storm was devastating and could cause up to $50 billion in damages, construction companies and other companies responsible for the clean up will need to hire more people to aid in the clean up efforts. Thus, the next few month's of jobs reports could continue to be strong. Also, for the past few years, job growth has tended to accelerate from the the fourth quarter through the first and into the second of the next year and then slowed again.

The report comes just five days before the U.S. Presidential election, on which investors' eyes are now focused. Most surveys indicate the race as being too close to call at this point and the race will come down to a few states. The employment situation report will be the last major economic data release ahead of the election, which Tom Keene of Bloomberg Surveillance has deemed the economy election.

Good news lies in the footnotes of the report. The Labor Force Participation Rate, a good measure of people's confidence in the job market, rose to 63.8 percent in October, the second consecutive month of gains following the rate reaching a multi-decade low just a few months ago. Also, the number of people employed part-time for economic reasons, a measure that reflects the ability of those looking for full-time employment being unable to find it, fell by 269,000, partially off-setting the jump in September which was probably due to the return of students to colleges and universities where they take research co-op jobs. Also, the number of discouraged workers (those who have given up looking for a job) fell.

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