Our Take on a Disappointing Jobs Report

Oct 8, 2021 1:00 PM EDT

The September Employment Report was out this morning, and to be blunt, it was a gross disappointment as the nonfarm payroll figure came in at 194K vs. the expected 450K. Notable job gains occurred in leisure and hospitality, in professional and business services, in retail trade, and transportation and warehousing.

The litmus test for Fed tapering according to data compiled by Bloomberg News was 240K jobs in September and the miss relative to that would suggest the Fed's timing is likely to be pushed back at least to its December monetary policy meeting. Adding to that view was the concerning trend in the jobs data that showed a month over month decline in job growth in September vs. August. That continued the month over month decline recorded in August vs. July even after today's upward revision.

In a nutshell, this is not what the Fed or economy watchers were looking for and we suspect it will raise fresh concerns over the speed of the economy. At the same time, the hopes raised by the stronger than expected September ADP Employment Change Report that the beginning of the end for employment and supply chain shortages could be in sight will have to be rethought as well.

For those looking for a silver lining in the report, it would be in the reported wage gains as average hourly earnings for all employees on private nonfarm payrolls rose by 19 cents to $30.85. While good for consumers and their spending, as investors the sobering take is wage costs are ticking higher, another area of pressure for company margins.

And one pseudo benefit is the report likely means the Fed's bond-buying will be with us for a bit longer than previously thought because of slower recovery. We think equities have priced in tapering to happen from end of this year to middle of next year, and interest rates raised by end of 2022. When that actually happens, there might be a knee-jerk reaction, but over the long run investors have been well prepared for this tightening of monetary policy to happen.