November 5, 2017 – The U.S. economy generated 261,000 jobs in October, a robust number but below forecasts of over 300,000.  Payrolls for the prior two months were revised upward by 90,000 though.  The unemployment rate ticked down from 4.2% to 4.1%, its lowest level since December 2000 due primarily to a reduction in the labor force.  Unexpectedly, wage growth came in at 0% month-over-month, versus expectations of 0.2%. Sluggish wages reflect a tilt in job creation toward lower-paying jobs, evidenced by an unemployment rate of only 5.7% among people without a high school degree, a 25-year low.

Previous to the jobs report, the Fed left rates unchanged saying that “the labor market has continued to strengthen and that economic activity has been rising at a solid rate” as underscored by the labor market report.  However, the lack of rising wages and inflation continue to vex the Fed.  They remain on course to “normalize” rates with another rate rise expected at its December meeting, but if inflation remains conspicuously absent, it is unclear how much further they will need to raise rates in 2018.  President Trump nominated Jerome Powell to replace Janet Yellen as the next Fed Chair. From the markets’ perspective, appointing Powell is as close as one could come to keeping Yellen, given that he has sat on the Fed board during her entire tenure and has never openly dissented on a single Fed decision or given a contrarian speech during that time. Most Fed watchers consider Powell to be in the center of the dovish-hawkish spectrum, which suggests he will probably continue the Fed’s gradual, data-dependent shift away from accommodative monetary policy.  

In the Alternative Lending space, another bank partnership was announced where Citizens Bank launched a new digital lending capability that will make it easier for small business customers to apply and receive approvals for loans. In collaboration with Fundation, the new lending platform advances Citizens’ strategy of leveraging innovative digital technologies that create excellent end-to-end customer experiences.  Kroll Bond Rating Agency (KBRA) assigned preliminary ratings to three classes of notes to be issued by SoFi Consumer Loan Program 2017-6 (“SCLP 2017-6”), a $591 million consumer loan ABS transaction.  This will be SoFi’s sixth consumer loan transaction for 2017.  

Opinions expressed within the commentary are general opinions of Chris Lalli  and are not opinions of CapAccel or SF Sentry Securities, Inc. Nothing in this commentary should be viewed as solicitation to buy or sell specific securities or a recommendation to participate in any transactions. Securities offered through SF Sentry Securities, Inc., member FINRA/SIPC.

Sources:  TIAA-CREF, Wall Street Journal, PeeriQ