Jobs Growth in US Slows, Sparking Rally in Government Bonds
In a sign that the US economy is beginning to cool, jobs growth in the country slowed sharply in October, leading to a rally in government bonds. According to the Bureau of Labor Statistics data, US employers created only 150,000 new jobs last month, which is less than forecast and barely half of September’s figure. Economists surveyed by Bloomberg had predicted 180,000 new jobs for October.
The disappointing job growth figures have prompted investors to bet that the US Federal Reserve will not raise rates further in the coming months. This has fueled a rally in US Treasuries, with the yield on the two-year Treasury note falling to a two-month low. The stock market also responded positively, with the S&P 500 opening 0.7% higher in early trading.
“This jobs report is helping convince non-believers that this is very much the end of the rate hike cycle,” said Kristina Hooper, chief global markets strategist at Invesco. “We are very much in a disinflationary trend, the economy is cooling and the Fed does not have to hike rates again.”
In addition to the sluggish job growth, the US unemployment rate rose to 3.9% in October, up from 3.8% in September. Average earnings saw a slight increase of 0.2%, a slowdown from the previous month’s 0.3% increase. Job gains in August were also revised lower by 62,000 to 165,000.
The Federal Reserve has been steadily raising interest rates to bring down inflation since March last year. However, in their recent meeting, the central bank decided to hold interest rates steady and is expected to keep borrowing costs at current levels for some time. Financial markets have already priced in bets that the Fed will not increase rates further, with officials shifting the debate towards how long to keep rates high.
The bond markets have shown a strong rally this week, with the yield on the 10-year Treasury note falling to its lowest level since mid-October. This follows comments by Fed chief Jay Powell, who indicated that the central bank is proceeding cautiously with further rate rises, suggesting that borrowing costs have already had a slowing effect on the US economy.
Overall, the slowdown in job growth and the rally in government bonds indicate that the US economy may be cooling. Investors and Fed rate-setters will closely monitor the labor market for further evidence of the impact of the central bank’s monetary policy tightening campaign.