Call it a jobs jump.
Stocks surged after the Labor Department delivered a stronger-than-expected nonfarm payrolls report for the month of October, leading the S&P 500 to a record high and pushing the Dow Jones Industrial Average up more than 200 points in Friday’s trading session.
Jan Hatzius, chief economist at Goldman Sachs, said the report was surprisingly good:
“It was a very strong report. The current month was significantly stronger than expected and there was a large upward revision. So, if you look at the jobs numbers now, you’re really not seeing that much of a slowdown. It’s a little bit surprising because other indicators do show a slowdown over the last year, but the job market’s just chugging along for now. … I think it’s very consistent with what you’re seeing in the established … jobs numbers that labor demand continues to be strong, and I think the long-term trend in labor force participation is probably slightly down still because of demographics, [the] aging of the population. But against that, you’ve got this very strong labor demand, which is pulling more people into the workforce, which is obviously a good thing and it’s a signal that [the] job market’s very robust. … So, I think there are some signs of labor scarcity, nothing major, but, to some degree, you are seeing it in the wage numbers. Today’s number was obviously weaker, but the trend has been towards stronger wage growth. But, yeah, I think companies can still find workers where they need them, but they do have to pay up more than they have in previous years.”
Diane Swonk, chief economist at Grant Thornton, said the market’s positioning on the whole is “certainly defensive.”
“The Fed could’ve paused, but they didn’t. So, we have it now. I think what’s important, too, though, is in the composition. The dirt is always in the details. The upward [earnings] revisions really came from leisure and hospitality [and,] most notably, food services, and retail. Retail had been careening downward all through the summer, really on a downward trend. It peaked in 2017, retail employment, but that actually was revised up over the last couple months along with the food services. The food services [are] also interesting because we know from Yelp data, from people searching and where they’re going and how they’re rating things, they’ve moved downscale. They’ve moved to lower-cost restaurants and to fast-food restaurants, which could be accounting for some of that hiring. What is a little bit surprising in the data, the manufacturing data, [is] we did not lose as much as we thought from GM because we saw GM’s competitors pick up production and manufacturing outside of the vehicle sector add jobs, so I think that’s important. On the other side of it, though: those service-sector workers are seeing a deceleration in wage growth, they’re not seeing increasing wages out there as rapidly as they had been, and they’re getting less hours worked. Their hours are being cut back a bit. So, as many of these services providers have had to pay more for workers, now, it seems that they’re willing to cut back on the hours that they have them and not have them pay overtime or, in some cases, cross the threshold into benefits.”
Christopher Harvey, head of equity strategy at Wells Fargo Securities, was focused on “the bigger picture”:
“I think the bigger picture, the bigger issue that we have, is the fears are really — it’s not that they’re unfounded, [but] they were just too great, whether we’re looking at earnings, whether we’re looking at the job picture, whether we’re looking at the economy. And that’s what we’re beginning to see and that’s why the stock market’s walking higher. … I think record highs are justified. You have low rates, you have an accommodative Fed, you have reasonable valuation, no inflation and people are positioned very risk averse. What’s been leading the way? Your bond proxies [and] your low-vol[atility trades].”