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Initial Jobless Claims Down, Q3 U.S. Productivity Falls

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Another Thursday morning, another terrific Initial Jobless Claims headline: 214K new claims arrived last week, down from the upwardly revised 216K (215K originally reported last week) and squarely within the historically robust 200-225K weekly jobless claims number. As the summer turned to autumn we saw these weekly headlines dwindle toward sub-200K, which would present another leg up in a long-term extraordinary jobs growth picture.

Continuing Claims also trickled lower last week, from 1.638 million the previous week to 1.631 million in this latest read. This is consistent with what we’ve seen in past months and with weekly claims: a perpetual lowering of the numbers in this metric, from well above 300K following the Great Recession a decade ago to breaking beneath 200K in the past year or so.

We saw ADP’s (ADP - Free Report) private-sector payroll numbers hit the tape yesterday, for a total of 227K — well above the 100K or so new jobs we need to offset retiring Baby Boomers on a month-to-month basis, and pushing analysts to increase their expectations for tomorrow’s non-farm payroll results from the Bureau of Labor Statistics (BLS) from the 180-190K range to 200K or higher. We also look forward to a new Unemployment Rate, last read at another historically low number, 3.7%, which many analysts also see going down to sub-3.5% in the near future.

U.S. Productivity in Q3 came in a tad light from expectations to 2.2%, and lower than the previous read of 3.0% (which was itself revised upward by 10 basis points). Commensurate Unit Labor Costs ticked up higher than expectations to +1.2%, and a swing to positive on costs from -1.0% last quarter. This nudges along the narrative that wage increases are on the move upward as the strong labor market continues to tighten. It’s been a long time for wage growth metrics to start hitting the economic numbers, but there are unmistakably here now. We’ll be playing close attention to these numbers in tomorrow’s BLS report.

While this is all great news for the U.S. economy and its workforce overall, it’s less than scintillating for those investors hoping the Federal Reserve will keep interest rates lower for longer. At a bank-to-bank range of 2.00-2.25%, interest rates aren’t close to inverting the yield curve and are no longer outpacing inflation. Rising interest rates are intended to curb inflation hitting the economy, among other things, which we’re clearly seeing in our aforementioned jobs reports, and there’s no reason to suspect at this time that the Fed will choose to do anything other than raise rates another 25 basis points to 2.25-2.50% at its December meeting.

Q3 earnings season continues as well today, with no report more important than that of the world’s largest publicly traded company, the $1.05 trillion market-cap Apple Inc. (AAPL - Free Report) , whose earnings release comes out after the closing bell this afternoon. With 8 upward analyst revisions on the company in the past 60 days, the Zacks consensus estimates going into the earnings report are for $2.79 per share on $61.49 billion in quarterly sales. These represent year over year gains of 35% and 17%, respectively.

However, this being the period of volatility it is, many think that should Apple merely meet these still-impressive forecasts, the stock will sell off in late trading today. The company has not missed earnings expectations since Q1 2016, which was its only miss in the last 20 quarters. The 4-quarter average positive earnings surprise for Apple is roughly 5.5%.

But if Apple does not put out strong numbers on its key segments beyond iPhone sales — Services, China and its App Store, in particular — expect traders to sell shares of the largest Dow component going into tomorrow’s opening bell. Apple is trading up 27% year to date in an overall market that is basically flat. Then again, a blowout fiscal Q4 2018 report could send futures higher overall.

We’re all counting on you, Tim Cook…

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