US Non Farms Numbers Surprise Analysts and Boosts Sentiment

Posted on | December 4, 2009 |

It was a euphoric afternoon on the trading floor, with sentiment moving from fearful to fearless the second the US non-farm payroll figure hit the market.

Stock markets cheered today, after US non-farm payroll figures revealed that the American economy lost its fewest jobs in nearly two years last month.

Non-farm payrolls fell by only 11,000 in November, substantially better than expectations for a 125,000 decline. [1]

Payroll revisions showing 159,000 fewer jobs lost over October and September was also extremely encouraging: payrolls in October were revised to show an 111,000 drop instead of an initially reported 190,000 decline, while payrolls in September fell 139,000 from an previously reported drop of 219,000.

Today’s report showed the professional and business services segments adding 86,000 payrolls. Education and health services also increased payrolls by 40,000. In contrast, manufacturing payrolls fell 41,000 in November while the construction sector shed 27,000 jobs.

The US unemployment rate, meanwhile, declined to 10% in November from 10.2% the previous month. The latest reading was also better than consensus expectations, which were pointing to a flat reading.

Overall, the unexpected rebound in labour market conditions suggests that US consumer spending is likely to be stronger than anticipated, especially over the all-important festive season. This could mean that we’re likely to witness an acceleration in the US economic growth rate over the fourth quarter.

Also boding well for market sentiment was a bigger-than-expected rise in American factory orders, which rose by 0.6% in October following a revised 1.6% gain the prior month. A sharp pickup in demand for non-durable goods was responsible for the stronger gain in factory orders.

The report also showed factory inventories rising 0.4% in October, the first rise in 14 months. The increase in factory stocks suggests that factories are ramping up production, perhaps in anticipation of stronger consumer demand over the festive season.

By 3.30pm (London time) the Dow Jones Industrial Average traded 120.16 points (+1.16%) higher at 10486.31, while the broader S&P 500 was 14.66 points (+1.33%) above its previous close at 1114.58. The Nasdaq, meanwhile, climbed 27.48 points (+1.54%) to 1810.39.

The US Dollar rallied broadly higher as well today. This is something we haven’t seen in quite a while; over the past year the Dollar has had a tendency to depreciate whenever there was an increase in risk appetite and vice versa.

The relationship was created on speculation that US interest rates would remain at a low rate for a prolonged period, yet those expectations were unequivocally defied today. The stronger US data is essentially encouraging investors to buy back the Dollar in case interest rates rise ahead of expectations.

The Dollar’s rally took the shine off gold, which is also perceived as a safe-haven instrument. December gold futures tumbled 3.2% to $1179.1 per ounce.

In contrast, high grade copper, a metal used for industrial purposes, found some support from the data. By 3.30pm (London time, December high grade copper was trading around 0.1% higher at $3.222 per pound.

Crude oil also benefited from the American data, with January Light Sweet crude (WTI) futures up by nearly 1% to $77.19 a barrel.

In corporate news, Big Lots, which sells excess inventory at discounted prices, saw its shares surge 18% to $27.79 after posting third-quarter results that were above consensus estimates. The company also upped its guidance over the for the holiday season.

Sun Microsystems was also en vogue, up 2% to $8.40 after Eben Moglen, a renowned law professor at Columbia University, told European regulators holding up Oracle’s $7 billion purchase that their assessment may be flawed.

[1] Source: Expectations based on a Bloomberg survey

By Anthony Grech, Research Analyst, IG Index.

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