Positive Labor Market Report

This morning’s better-than-expected jobs report adds to the growing list of recent economic readings that is showing positive, albeit below-trend, economic growth in the U.S. economy. This should help in reassuring the markets and further offset some of the recessionary fears.

The Bureau of Labor Statistics reported the creation of 103K jobs in September, significantly better than the roughly 60K expected. Private sector jobs totaled 137K, significantly above the expected 90K level, and an acceleration from the August tally.

We also have positive revisions to the prior two months, with August going up by 57K and July increasing by 42K, for a total of 99K net additions to the originally reported July and August numbers. The unemployment rate remained unchanged at 9.1%. Average work week ticked up, while average hourly earnings increased 0.2% after slipping in August.

If we step back from the swings in the BLS numbers over the last two months and look back at how the labor market has performed since the beginning of the year, we see a clear loss of momentum. Today’s positive numbers only partly erase that negative trend. This loss of momentum in the labor market is in-line with how the broader economy has behaved in this timeframe as well.

The economy started the year on a fairly positive note, but then came across a number of hurdles, ranging from the spike in oil prices as a result of developments in the Middle East to the Tsunami in Japan. The acrimonious debt debate in the summer and the subsequent rating downgrade further damaged confidence in the recovery.

The question at this stage is whether the recovery can get back on track after receiving all these blows, particularly given the unsettled European backdrop and signs of weakness in China and other emerging markets. The economic readings lately, including today’s jobs numbers, have been showing evidence that the recovery was on track, albeit at a below-trend pace.

In corporate news, we have a positive pre-announcement from software maker ServiceSource International (SREV) and negative pre-announcement from Illumina (ILMN), the maker of scientific measurement instruments.

It’s all about jobs today. The payroll report is further evidence that there is enough latent momentum in the economy to avoid a fresh recessionary downturn. If we get a similar reassurance on the earnings front in the coming days, then we will most likely be starting a fresh rally in the market.

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