It's the first Friday of the month, which means it is time for the Big Kahuna of economic data - the jobs report. So, without further ado, let's get to the report and review the bevy of numbers.

The headline everyone focuses on new job creation for the month. The Bureau of Labor Statistics reported that Nonfarm Payrolls surged by 250,000 for October, which was well above the expectations for 190,000 - and is thus considered a big surprise to the upside.

As usual, there were revisions to the two previous reports. September's total, which was impacted by Hurricane Florence, was a bit of a surprise, being revised downward to 16K to 118K from 134K, while August's job gains saw an increase of 16K to 286K (from 270K). In sum, the adjustments were a wash.

The average monthly job gains over the past three months now stands at 218K (from 190K last month) and the average over the last two months is 184K. Both remain strong numbers.

Unemployment At Best Level Since Armstrong Walked on the Moon

The next big headline in the report was the nation’s unemployment rate, which came in at 3.7%. This was in line with the expectations for a reading of 3.7 and unchanged from last month's reading. Note that the current unemployment rate represents a 49-year low as the last time the rate was at 3.7% was December 1969.

The Inflation Implication

On the all-important inflation front, the government reported that wages grew by 0.2% in October, which was also in line with the Wall Street estimate and down from the 0.3% gain seen in September. And on the critical year-over-year view, wages are now up by 3.1% which was spot on the expectations and a 0.3% above last month's reading of 2.8%.

Note that the last time average hourly earnings grew at a rate above 3% on an annual basis was April 2009.

The "U6," which represents a broader measure of unemployment due to the fact that it includes "discouraged workers," fell to 7.4% from 7.5% in September (August: 7.4).

The Private Sector

Looking at the private sector (which does not include government jobs), the Labor Department says the economy created 246,000 new jobs last month. Recall that ADP reported Wednesday that, according to their tally, the private sector added 277,000 new jobs in October, which was well above the 230,000 new jobs last month (August: 163,000).

The Takeaway

This morning's report has to be considered "strong." However, the bears will argue that the data is actually too hot as it gives Jay Powell's Fed "cover" to continue with their plans for another rate hike in December and then three more in 2019. At issue here is the concern that growth is slowing and that an overly tight Fed will slow the economy unnecessarily.

Market Reaction

Market reaction has been conflicted. The yield on the 10-year jumped from 3.14% to 3.18% immediately following the report and is currently trading at 3.163%. Yesterday's closing yield was 3.136%.

The response in the stock market is a bit more complicated. Stock futures had been pointing to a gain of more than 300 Dow points prior to the report. The mood of the pre-market had been buoyed by word that China/U.S. trade relations might be thawing.

In addition to the tweet heard round the world where Trump talked about his "very good" phone conversation with Xi Jinping yesterday, this morning, Bloomberg is reporting that the President has asked for a draft of trade agreement terms. Thus, hope grows for a productive meeting between the heads of the U.S. and China at this month's G20 meeting.

However, around the time the Jobs report was released, questions were raised as to the validity of the Bloomberg report. And while it is difficult to tell which is the tail and which is the dog at this point in time, Dow futures now point to an open of about 200 points on the Dow.

In other news on this fine Friday morning, the world's largest company, Apple (AAPL), reported earnings that while at record levels and up more than 20% over year-ago levels, disappointed some analysts (quarterly guidance and the sustainability of growth appear to be the primary issues) and the stock is down 6% in pre-market trade. Thus, the iPhone maker is expected to be a drag on DJIA, NASDAQ, and S&P 500 indices today.

The bottom line is there is a lot for traders to digest here including earnings, rates, inflation, the state of the economy, jobs, the elections, and, of course, trade. And after a three-day bounce, investors shouldn't be surprised by any reaction in the stock market today.

Thought For The Day:

You can't build a reputation on what you're going to do. -Henry Ford

Wishing you green screens and all the best for a great day,

David D. Moenning
Founder, Chief Investment Officer
Heritage Capital Research

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PRESS RELEASE

Disclosures

At the time of publication, Mr. Moenning held long positions in the following securities mentioned: AAPL - Note that positions may change at any time.

The opinions and forecasts expressed herein are those of Mr. David Moenning and may not actually come to pass. Mr. Moenning's opinions and viewpoints regarding the future of the markets should not be construed as recommendations. The analysis and information in this report is for informational purposes only. No part of the material presented in this report is intended as an investment recommendation or investment advice. Neither the information nor any opinion expressed constitutes a solicitation to purchase or sell securities or any investment program.

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