With the US Federal Reserve having cut interest rates by 0.5% at their last meeting just a couple of weeks ago, the market is clawing over all pieces of economic data released for insight as to when and by how much the next move could be. With the labour market being quoted by the Federal Reserve committee members as a reason for the cut, anything related to this is being particularly scrutinised.

Earlier in the week we saw the JOLTS Quits rate released, representing the number of people voluntarily leaving their job. Here we saw the continuation in the moving lower trend. Whilst closely followed this can be a difficult figure to understand. Is the number moving lower because better opportunities elsewhere are more difficult to find? Or is it due to people now being more content in their current employment given the pay increases they have recently received?

The more important figure for the market was the release of the non-farm payrolls figure for September. Here there was a large surprise to the upside to be digested. The general consensus was that 140,000 jobs would have been added. The actual number was much greater however, at 254,000, with the unemployment rate falling to 4.1%. There was also an upward revision to the previous month.

Analysis here shows that it was very much the private sector where there was a pick up in jobs added, in particular the service providing sub-sector. Significantly fewer jobs were added in the government sector. A beat of this magnitude will potentially go some way to reaffirming the belief that we will see a soft landing in the US economy. As a consequence, at the time of writing, we have seen the US 10 year yield push back up to almost 4%. The stock market has responded positively.

The soft landing theory, however, for now looks dependent on the service sector. The latest confidence surveys this week continues to suggest a two speed economy in the US, with manufacturing in contraction but the service sector continuing to expand quite strongly. This latter element ties in nicely with the non-farm payroll figure, where the jobs added were in the service providing sector.

In what is undoubtedly a positive in terms of global trade and the shipment of goods, US dockworkers have postponed their strike on the back of a tentative agreement being reached over pay. This will reportedly see them receive a 62% pay rise over the next 6 years. Averting of a strike is undoubtedly a positive for the economy and perhaps prevents a spike in goods inflation. It does, however, show that there are potentially parts of the labour market where there remains the possibility of strong wage growth.

Finishing with the euro area, it would appear the European Central Bank (ECB) has plenty of scope for further rate cuts. The flash rate for September showed year on year price growth of 1.8%, below the 2% target. Whilst the inflation rate could pick up from here a little as low energy prices start to drop out of the calculation, it would be surprising to see the ECB not cut further.

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