(Reuters) – U.S. job growth increased moderately in September, with the unemployment rate dropping to near a 50-year low of 3.5%, which could assuage financial market concerns that the slowing economy was on the brink of a recession amid lingering trade tensions.

KEY POINTS:

* Sept nonfarm payrolls +136,000 (consensus +145,000) vs Aug +168,000 (prev +130,000), July +166,000 (prev +159,000)

* Sept labor force participation rate 63.2 pct vs Aug 63.2 pct (prev 63.2 pct)

* Sept jobless rate 3.5 pct (consensus 3.7 pct) vs Aug 3.7 pct (prev 3.7 pct)

* Average hourly earnings all private workers unchanged (cons +0.3 pct) vs Aug +0.4 pct (prev +0.4 pct)

* Sept U-6 underemployment rate 6.9 pct vs Aug 7.2 pct (prev 7.2 pct)

* Sept private sector jobs +114,000 (cons +133,000), vs Aug +122,000 (prev +96,000)

* Government jobs +22,000 vs Aug +46,000 (prev +34,000)

MARKET REACTION:

STOCKS: S&P e-mini futures ESv1 turn slightly higher and were last up 0.18%, pointing to flat to slightly higher open

BONDS: Treasury yields rose slightly; 2- year US2YT=RR at 1.4237% and 10-year US10YT=RR at 1.5477%

FOREX: The dollar index .DXY reversed slight losses and was about 0.05% higher

COMMENTS:

SHAWN SNYDER, HEAD OF INVESTMENT STRATEGY, CITI PERSONAL WEALTH MANAGEMENT, NEW YORK  

“Anytime you see the unemployment rate fall Wall Street is going to think it’s good.”

“Investors are on high alert for signs of a recession … It doesn’t confirm the story. Positive payroll is not consistent with a recession.”

“It’s sort of a goldilocks report. It’s not strong enough to move the Federal reserve away from cutting rates at the end of October but it’s not weak enough to make you concerned about the labor market or the consumer.”

SHAUN OSBORNE, CHIEF FX STRATEGIST, SCOTIABANK, TORONTO:

    “The number came just shy of expectations, but given that market expectations have shifted after the ADP and ISM numbers, people were bracing for something worse than this. So this is in the ballpark of what is acceptable. Wage growth is a bit soft, but unemployment dropped. In a broad sense, this was not that bad. It probably gives the dollar a bit of breathing room after a bit of a rough ride the last three or four days.”

JOSEPH SROKA, CHIEF INVESTMENT OFFICER, NOVAPOINT, ATLANTA

“The number came up light relative to consensus, but not too bad on the private data. But the culmination of the weak ISM data and the payrolls report is increasing the odds in investors mindset that the Fed has more incentive to consider another interest rate reduction at the next meeting.”

“The economy has been going through a low level of deceleration over the last couple of months and when you take them in aggregate some is trade-related and some is time-related, meaning you can’t grow infinitely. The Fed’s been proactive on adjusting interest rates before we saw the data like this month’s ISM. So maybe the issue that some modest rate adjustment from the Fed is enough to keep the economy from a deeper decline and extend expansion, albeit at a slower pace.”

SAMEER SAMANA, SENIOR GLOBAL MARKET STRATEGIST, WELLS FARGO INVESTMENT INSTITUTE, ST. LOUIS

“Headline job growth, private payrolls, and manufacturing payrolls, and wage growth all came in weaker than expected and suggests some softening in the labor market.

  “This data probably reinforces the case that the U.S. is now beginning to feel the effects of the ongoing global slowdown and probably strengthens the case for additional rate cuts, if the Fed chooses to go down that path.”

TOM PORCELLI, CHIEF U.S. ECONOMIST, RBC CAPITAL MARKETS, NEW YORK

“If people were genuinely on the edge of the conversation about whether or not we’re slipping into recession or not, this is the kind of number that should force them to take a step back from that view. I never necessarily thought that people should be holding that view, but I’m simply highlighting a market reality. I think that there was, from the market perspective, a real risk that we were slipping into recession. This is not a recessionary kind of number. This was a perfectly sound report in most ways, not in every way. The one thing that I don’t like is that average hourly earnings were flat. But nevertheless, the unemployment rate improved again, we’re 3.5% on the unemployment report. This is not a dynamic that happens with great regularity in the United States, historically speaking. The labor backdrop is actually in really good shape, despite a lot of the noise that we continue to hear about these fears. This report throws a lot of cold water on that.”

“I think the Fed is locked going in October, almost no outcome was going to change that. Whether the number was worse than expected or even quite a bit better than expected, I think the Fed was going to go. The doves on the committee are obviously in control because they are the voters right now.

KATHY JONES, CHIEF FIXED INCOME STRATEGIST, SCHWAB CENTER FOR FINANCIAL RESEARCH, NEW YORK

“I think that the overall picture confirms the gentle slowdown in the economy that is already priced into the bond market. But the lack of wage gain, I think, is a bit of a surprise. You would think that given the low level of the unemployment rate, wages would be ticking up, but actually average hourly earnings were down a bit. That could be a fluke, but they did peak in February…That raises a lot of questions – what is the composition of jobs that are being added? Is it that we’re pulling in a lot of folks who have been at the margins and therefore are more low-wage jobs being added?”

“All in all, it’s not probably a big mover for the bond market, but it does leave the likelihood of a Fed rate cut on the table – perhaps in October, perhaps they’ll decide upon it in December and get more data.”

“It’s pretty consistent with what we saw with the PMIs, the ISMs… The ISM was pretty soft. The drop in the manufacturing payrolls was a confirmation of softness in there. We saw a bit of a drop in mining as well, which is not surprising. Construction, soft. Overall a soft report, but that was anticipated.”

JOHN VELIS, GLOBAL MACRO STRATEGIST, BNY MELLON, NEW YORK

“Going into it and considering what we saw with the two ISM surveys, it could have been a lot worse. It’s probably just right for the market and not as dire as many people expected. It doesn’t mean that the economy and the jobs market are falling off a cliff. On the other hand, it’s not strong enough that it’s going to take out this additional Fed easing that has been priced into the curve the last few days.”

DOUG DUNCAN, CHIEF ECONOMIST, FANNIE MAE, WASHINGTON

“The revisions being up is a positive because typically when the employment market is slowing the revisions of prior months are down, and that has been the case for about five months. So, the fact that the revisions are up this time suggest that there’s not a precipitous slowing in unemployment. The fact that wage rates are holding is good news, it’s support for the consumer.

“There’s not a warning of a significant slowdown in the economy from these data. Our view is that in order to maintain the level of unemployment stable we need to add somewhere between 100,000 and 120,000 jobs a month, so this certainly fits that. It does not suggest a significant slowing in activity at this point.

“I would be surprised if there was a significant reaction (from the market) in either direction. What it does do is highlight the differences of opinion on the Fed board about whether the economy is slowing precipitously or not and you had multiple dissents from the last rate cut, that doesn’t help clarify for them whether their disagreements are merited or not.”

JJ KINAHAN, CHIEF MARKET STRATEGIST, TD AMERITRADE, CHICAGO

“There is a lot to like, especially given the revisions that happened. Retail losing as many jobs as it did again, I don’t think it is a big surprise. We continue to see that trend, everyone is trying to figure it out, so to speak, and again the area they lost them in being primarily in clothing.

“Manufacturing may be a little bit concerning, down 2,000 jobs not a huge thing overall. You have to remember this did not include the GM strike because of timing. So that one will show up in the next report, but it is great that we got a 45,000 revision higher between July and August and that is one of the things people really liked about this. The two areas that have been unbelievable being healthcare and business to business services are just stud sectors. Every single month those two sectors show up and we just continue to see that. The other thing that was important was transportation and warehousing, so again, areas that take goods from one place to another, up 16,000 jobs. Most of this was a real positive for the economy despite some of the other numbers we are seeing.

“We’ve had such a string of bad news, that anything that shows the economy is doing better than perhaps people have been talking about is well received. I don’t think it clarifies the picture any which way (for the Fed). It is one more piece of gray thrown into the picture.”

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