US unemployment rate hits its lowest level since January 2009

A dramatic set of jobs data out of the US gave both stocks and the US dollar a knee jerk lift in trading on Friday afternoon, with the data showing a surprising fall in the US unemployment rate to 7.8%.

The big news about the US labour data is actually not what happened in September, but indeed the hugely positive revisions made to jobs data for both August and July and the drop in the unemployment rate.

A whopping 86,000 jobs have been added to July and August payrolls in a perplexing set of revisions.

In Septembers jobs data, non-farm payrolls added 114,000 jobs, in line with forecasts and private payrolls added 104,000, short of the 130,000 consensus.

The drop in the unemployment rate is a real surprise too. The drop was related to the biggest jump in households reporting employment since June 1983, with 873,000 more jobs reported in the survey. We need to take these numbers with a pinch of salt, however, as the survey can be somewhat volatile.

The US unemployment rate is now at its lowest levels since January 2009, which is a real surprise and will undoubtedly give President Obama a lift after his disappointing performance in the first live Presidential debate earlier this week.

As a consequence of the US data we saw a knee jerk rally in share prices, with the FTSE 100 pushing higher by 20 points in the immediate aftermath of the data release. The improvement of the unemployment rate does, however, pose a threat to the longevity of the Federal Reserve’s recent $40bn monthly increase in asset purchases, which Bernanke claimed would be open ended until the unemployment rate comes down.

Whilst we don’t know where the subjective rate target is, it is perceived to be at or below the 7% mark, and so today’s big fall in the unemployment rate from 8.1% to 7.8% is going to be a threat to that. As such, it was no surprise to see the US dollar gain ground on higher demand as a result of the US jobs data.