NEW YORK (Reuters) - Employers cut payrolls by 240,000 in October, much more severely than expected, while September registered the biggest monthly loss in jobs in nearly seven years, according to a government report on Friday that showed U.S. labor markets were sharply deteriorating.
KEY POINTS: * The Labor Department said the national unemployment rate shot up to 6.5 percent from 6.1 percent in September, the highest since March 1994. * October’s job cuts were much worse than anticipated by Wall Street economists who had forecast 200,000 would be lost. * Even more strikingly, the department revised September’s losses to 284,000 - the highest since November 2001 just after the September terror attacks - and also revised August losses higher to 127,000. * That meant 179,000 more jobs were cut in August and September than previously had been thought. * In total over the three months through October, 651,000 jobs have been slashed from payrolls.
IAN SHEPHERDSON, CHIEF U.S. ECONOMIST, HIGH FREQUENCY ECONOMICS, VALHALLA, NEW YORK:
“October payrolls plunged 240,000, worse than the consensus -200,000, and there was a huge -179,000 net revision to Aug/Sep, so the overall picture is even worse than it seems at first. All the damage is in the core, with the seasonal rather more generous than we expected and the birth/death model unchanged from October last year.
“Payrolls dropped sharply everywhere except government, education and information services. The Boeing strike depressed manufacturing by 27,000 but that is not enough to change the overall picture of a labor market in broad based meltdown. The unemployment rate jumped to 6.5% from 6.1%, above the expected 6.3%, and is likely to breach the 7% mark early next year. It has already broken above the June 2003 peak and the trend is rising almost vertically. Wages depressed too, up only 0.2%. In short, horrible in every way.”
SEAN SIMKO, FIXED INCOME PORTFOLIO MANAGER, SEI, OAKS, PENNSYLVANIA:
“Over the last couple of days we have seen the Treasury market rally and yields move lower. Although the consensus was down 200,000 for non-farm payrolls, at the back of their minds everyone was looking for a weaker number. So this is just a bit of a retracement (in U.S. government bond prices).”
RICHARD STEINBERG, PRESIDENT, CHIEF INVESTMENT OFFICER, STEINBERG GLOBAL ASSET MANAGEMENT, BOCA RATON, FLORIDA:
“Although worse than expected, most rational investors expected the number to be worse. Now watching Washington for continued healing of the banking system because unemployed people don’t buy goods and services.”
MICHAEL WOOLFOLK, SENIOR CURRENCY STRATEGIST, BANK OF NEW YORK MELLON, NEW YORK:
“The report shows the labor market continued to deteriorate at the start of the fourth quarter and we have to keep in mind that it doesn’t yet reflect much of the job losses in Wall Street. The dollar is somewhat weaker this morning but I wouldn’t be surprised if it turns around as the weekend starts. Negative U.S. data in the past couple of weeks has been triggering risk aversion and in turn managers repatriate funds back to the U.S. helping the dollar. The bid for the greenback should remain solid going forward.”
TOM ALEXANDER, HEAD OF ALEXANDER TRADING, SAVANNAH, GEORGIA:
The jobs report “was negative as it was expected to be and the trend in unemployment is up — that’s not good for the economy. But every day you have reports of lay-offs, be it on Wall Street or in Detroit, so there is no way anybody can be surprised by this number.
I have no idea how the market will react to this today. At the moment, the market is being hit with a number of unprecedented and historic changes in the financial variables that it uses to determine value. We had a financial crisis, we’re having a restructuring of the financial infrastructure and a new party elected to office — all of that is creating uncertainty. That’s why you see such incredible volatility.”
STEPHEN MALYON, CURRENCY STRATEGIST, SCOTIA CAPITAL, TORONTO:
“It looks like the market is voicing its displeasure with the number. But I wouldn’t say that it was significantly weaker than some of the whisper estimates probably anticipated. The expectation was for down 200K and it certainly came in worse than that with a big down revision to previous months. So it was worse than expected, but I don’t think you can describe it as being shockingly weaker than expected.”
RICHARD DEKASER, CHIEF ECONOMIST, NATIONAL CITY CORP., CLEVELAND:
“We have entered the phase of serious recession conditions. Unfortunately we will encounter more of this going forward.
“This is going to increase the urgency for another stimulus package to staunch the slide. Stimulus spending like (we had) early this year was not very effective. Infrastructure spending does not work quickly. Waiving the tax on jobless benefits is a fabulous idea because the money saved will be 100 percent spent.
“The monetary/regulatory approach is the most important to restore liquidity and confidence is working but it’s too late to help the economy.”
“This report is more deflationary than inflationary.”
THOMAS DI GALOMA, HEAD, U.S. TREASURY TRADING, JEFFERIES & CO., NEW YORK:
“I think the numbers are weak across the board but I think they were well anticipated. I think people were basically looking for a pretty weak number so it needed to be a tremendous surprise. It needed to be down 350,000 to really get the market rolling.”
KEVIN FLANAGAN, FIXED INCOME STRATEGIST, GLOBAL WEALTH MANAGEMENT, MORGAN STANLEY, PURCHASE, NEW YORK:
“Treasuries were priced for Armageddon and we didn’t get Armageddon. There is no doubt we are seeing deteriorating labor market conditions, but for those expecting down 300,000 the report didn’t quite measure up today.”
MARKET REACTION: STOCKS: U.S. equity index futures pare gains after bigger-than-expected decline in payrolls. BONDS: Treasury debt prices turn negative. DOLLAR: U.S. dollar trims losses versus euro. RATE FUTURES: Fed fund futures rise, signaling bet of big rate cut at next FOMC meeting.