US Stock Market Overview – Stock Surge Following US Employment Report; Sentiment Turns Positive

Stocks surged on Friday following a payroll report that was in the range of expectations. While the headline payroll number missed, the unemployment rate drops 0.2% down to 3.5% which is a 50-year low. Wages, unfortunately, were a disappointment, with average hourly earnings little changed over the month and up just 2.9% for the year, the lowest increase since July 2018. The US trade deficit widened more than expected in August thanks in part to a record level of imports of consumer goods.

US stocks surge on the open following the mixed payroll report. The market appeared to focus on the better than expected unemployment rate and the revisions to the prior months. Most sectors were higher, led by financials, energy shares bucked the trend. The VIX volatility index tumbled nearly 9% falling back toward the 50 and 200-day moving averages.

The Unemployment Rate Hit a 50-year Low

Unemployment hit a fresh 50-year low in September according to the Labor Department. The jobless rate dropped 0.2 percentage points to 3.5%, matching a level it last saw in December 1969. Expectations were for the unemployment rate to come in at 3.7%. A more encompassing measure that includes discouraged workers and the underemployed also fell, declining 0.3 percent points to 6.9%, matching its lowest in nearly 19 years and just off the all-time low of 6.8%. Non-farm payrolls rose by 136,000 slightly lower than the 145,000 expected. Wages also were a disappointment, with average hourly earnings little changed over the month and up just 2.9% for the year, the lowest increase since July 2018.

Health care led the way in job creation while retail lost another 11,000, bringing the total to 197,000 in jobs the industry has lost since January 2017. There were revisions to the prior months. August rose sharply, from an initial estimate of 130,000 to 168,000 while July increased from 159,000 to 166,000 for a net gain of 45,000. The average to date for the year is just 161,000, compared with 223,000 for the same period in 2018.

The drop in the unemployment rate, was because the number of people seeking jobs rose. The labor participation rate, which held steady at 63.2%. The total labor force increased by 117,000, while the employment-to-population ratio increased one-tenth of a point to 61%. Government jobs continued to rise, increasing by 22,000 though unlike in August. The average workweek was little changed at 34.4 hours.

The US Trade Deficit Widened

The US trade deficit widened more than expected in August as imports surged ahead of tariffs on China and the EU. The imbalance stood at $54.9 billion at the end of the month, more than the $54.5 billion expected. Imports rose to $262.8 billion against estimates of $261.4 billion, while exports increased to $207.9 billion, which also beat expectations of $207.4 billion.