Treasury yields typically fall on expectations of lower economic growth. The Markit U.S. Manufacturing PMI was revised marginally downward for October to 55.7 from a preliminary reading of 55.9. The Commerce Department reported that construction spending was unchanged at a record high in September as continued gains in private construction projects was offset by the biggest drop in public outlays in a year.
“The data continues to be relatively good in the United States – we see a bit of slowing momentum – but it’s still coming from a good place,” said Bill Merz, head of fixed income research at U.S. Bank.
“This is consistent with our perception that the numbers in the U.S. still look good but the momentum looks to be slowing.” Also contributing to lower yields was a Labor Department report that showed productivity growth slowed in the third quarter though the figure was slightly above expectations. Nonfarm productivity, which measures hourly output per worker, increased at a 2.2 percent annualized rate in the last quarter, slower than the 3.0 percent growth in the second quarter. The previous quarter’s number was the strongest since the first quarter of 2015.
Wall Street closes with tech-led gains. The fall in yields, however, was somewhat tempered by reports of U.S. labor market tightening. Yields across maturities were down 1 to 2 basis points, with the yield on the 10-year benchmark note last down 1 basis point. Yields initially rose modestly on Thursday morning after a report that unit labor costs rebounded in the third quarter after dropping the most in nearly four years in the prior period.
The Labor Department said on Thursday that unit labor costs, the price of labor per single unit of output, rebounded at a 1.2 percent pace in the third quarter. Unit labor costs in the April-June period declined at a 1.0 percent rate, which was the largest drop since the third quarter of 2014. Labor costs increased at a 1.5 percent rate from the third quarter of 2017.
More News On U.S. labor market tightening – manufacturing slowing
Reuters – New applications for U.S. unemployment aid fell last week and the number of Americans receiving benefits was the lowest in more than 45 years as labor market conditions tightened further. The economy’s upbeat outlook was tempered by news that manufacturing activity slowed in October as a measure of new orders dropped to its lowest level in 1-1/2 years.
Initial claims for state unemployment benefits dropped 2,000 to a seasonally adjusted 214,000 for the week ended Oct. 27, the Labor Department said. Data for the prior week was revised to show 1,000 more claims received than previously reported. Claims fell to 202,000 during the week ended Sept. 15, which was the lowest level since November 1969. Economists polled by Reuters had forecast claims falling to 213,000 in the latest week. The Labor Department said claims for North Carolina continued to be affected by Hurricane Florence, while Hurricane Michael impacted those for Florida and Georgia.
The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, rose 1,750 to 213,750 last week. The claims data has no bearing on October’s employment report, which is scheduled for release on Friday, as it falls outside the survey period.
According to a Reuters survey of economists, nonfarm payrolls probably rebounded by 190,000 jobs in October after Florence depressed restaurant and retail payrolls in September. But the pick-up in job growth was likely tempered by Michael, which struck the Florida Panhandle in mid-October.
Payrolls increased by 134,000 in September, the fewest in a year. The unemployment rate is forecast unchanged at a near 49-year low of 3.7 percent in October. U.S. financial markets were little moved by the data.
Categories: Economic Indicators