By Gregg Giboney The U.S. government’s October employment report provided modestly positive news with non-farm payrolls up 214,000. That's the 9th straight month of 200k-plus job growth. Along with job growth, the unemployment rate fell from 5.9% to 5.8%. Though the labor force participation rate remains at depressed levels, it did move up slightly from 62.7% to 62.8%. The employment picture is a plus for the stock market, which has proved remarkably resilient when negative news comes along. Call it the teflon bull market.
Challenges remain. The area of employment that has gained considerable attention is wage growth. October wage growth was only 0.1% that kept annual wage growth at a very modest +2%. This kind of wage growth still points to slack in the labor markets that has the Fed concerned. Consider that over half of jobs created in 2014 were barely above minimum wage. In my opinion, the Fed will look to initially raise short-term rates some time in the middle of 2015. This is further supported by comments from U.S. Federal Reserve Chairwoman Janet Yellen that a return to a normal interest rate environment will lead to some market volatility. I think this is part of an important information strategy from the Fed to prepare investors for rate increases. The divided U.S. government in the wake of the mid-term elections means little chance of legislative surprises.
A bigger surprise at the end of October was the decision by the Bank of Japan to expand its quantitative easing program. Japan is ramping up its printing presses as the U.S. turns its off. The oil market is another big theme impact financial markets. In my opinion, Saudi Arabia's decision to lower prices to the United States is designed eliminate marginal producers and create a firmer pricing environment.