October 7, 2016

Stocks opened modestly lower (Dow -26 pts; SPX -.2%). Utilities, financials and energy sectors are up very slightly but everything else is lower. WTI crude oil is trading slightly lower, near $50.20/barrel. The Bloomberg Commodity Index is up .5% this morning on gains in copper, gold. Bonds are mostly unchanged. The 5- and 10-year Treasury yields are hovering around 1.28% and 1.75%, respectively. 

The economy generated 156,000 net new jobs in the month of September, falling a bit short of Wall Street’s forecast for 172,000. August payrolls were revised up to 167,000 from the initial estimate of 151,000. The manufacturing and public sectors lost a few thousand jobs but services businesses more than made up for that. The unemployment rate ticked up slightly to 5.0% because more Americans re-entered the workforce looking for a job. That’s a positive sign; the labor force participation rate rose to 62.9%. The under-employment rate, which includes those working part-time because they can’t find a full-time position, held steady at 9.7%. The average workweek ticked up to 34.4 hours, and average hourly earnings accelerated to 2.6% y/y growth. So worker output is rising and incomes are rising. Wage growth has been gradually improving for almost 2 years now. 
This report is good enough to keep the labor market recovery on track, but not strong enough to make traders panic that the Fed is way behind on interest rate hikes. Fed Vice Chair Fischer said in a speech this morning that the jobs report is “pretty close [to] Goldilocks.” Bloomberg concludes, “Companies face a limited pool of available and qualified workers at the same time that improving prospects for employment are drawing more people into the labor force. Steady progress will underpin further wage gains and consumer spending…” Jan Hatzius of Goldman Sachs even went so far as to say he sees a “small but growing risk” that the economy could overheat in 2017 or 2018.

Honeywell (HON) is down 7.5% after issuing a third quarter profit warning. Management cut sales projections, citing a slowdown in aerospace goods orders. Preliminary Q3 sales were about $9.8bil vs. $10.1bil expected, and organic growth (excluding acquisitions) came in at -3% vs. -1% expected. The company says it now sees a slower macro environment in 2017, with declines expected in aerospace (business jets, helicopters, space). This comes as quite a surprise for investors, who are used to consistently great news coming from the company. 

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