In May of this year, we correctly noted the strong possibility of downside risk to payrolls growth in 3Q2013. In looking ahead to 4Q, we expect that the recent bounce in industrial activity in both the US and Europe presents definite upside risk to payrolls though underlying momentum should remain fairly constant. A big monthly NFP print between now and December will very likely lead to more consternation regarding the pace of ongoing Fed bond purchases.
As we discussed earlier in On Deck – US Inflation, significant excess capacity will continue to weigh on prices in the US and in several leading developed economies. This is typical during the early stages of the business cycle. So, while the market remains distracted by the issue of Fed taper, investors should remain focused and make their allocation decisions knowing that 1) policy rates in the US will stay low for longer than the market currently anticipates and 2) the tepid pace of US economic activity does not justify a further meaningful increase in US sovereign rates.
In On Deck – US Employment we provide a first-draft summary of the recent trend among several employment growth indicators: On Deck – US Employment (Fall 2013)