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Market reaction to this morning’s non-farm payrolls report looks slightly overdone, with price action heavily position-driven. The long-dollar trade had unquestionably become overcrowded, and many investors are now desperately trying to top-tick long-term yields, with buying activity surging in the belief that they have peaked.

Many of the underlying details still look stable, and widespread strike activity through late September and early October likely subtracted more than 50,000 roles from the headline print, leaving three-month job creation rates remaining relatively strong.

It is very unlikely that the US economy is currently in recession. The Sahm Rule, named after former Federal Reserve and Council of Economic Advisors economist Claudia Sahm, indicates that US recessions have historically begun when the 3-month moving average of the national unemployment rate has risen by 0.5 percentage points or more relative to its low during the prior 12 months – and it has not yet reached that threshold. At 0.33, it is currently assigning roughly 40-percent odds to a recession in the next three months.

But warning lights are flashing. The indicator has risen sharply over the last two payrolls reports to a post-pandemic high, and could push upward in coming months if business survey data is any indication. Caution – and a serious degree of skepticism around the idea of a “soft landing” in the US economy – remains well justified.

USD doldrums continue
Canadian jobs growth tops expectations, but details point to slowdown ahead
The peso’s bull run has run out of steam.
The fiscal outlook still looks favourable.
Canada's economy is slowing.
Nearshoring hopes look overdone.