The big news last week was the blowout jobs report: Total non-farm payroll increased 271,000 in October, greatly exceeding expectations. Further to that, there was much more to be excited about in this month's report. Headline unemployment fell to 5%, which is at the lower end of the range that the FOMC laid out as representing full employment; it's the largest jobs growth we've seen in a while. Also the U-6 rate, the broadest measure of unemployment, has finally retreated below 10%, clocking in at 9.8% for the first time since 2008.

The parts make up the whole
But the jobs picture was not all rosy. In addition to a low labor-force participation rate and a higher-than-normal level of part-time jobs for economic reasons, job creation wasn't universal. While we certainly saw good growth from a variety of industries including professional and business services, health care, retail and food services, not all industries were represented; manufacturing was flat and mining saw losses. This serves as a reminder that some significant headwinds continue for the US economy including a strong dollar, weaker global demand and low energy prices—although lower energy costs can be a benefit.

Other recent data releases have underscored that the economic recovery has been very lopsided. For example, comparing the ISM Manufacturing Index versus the ISM Non-Manufacturing Index shows very different results. The October ISM Manufacturing Index clocked in at 50.1, hovering near contraction territory. And although the new orders subindex and the production subindex are in decent territory, the exports subindex is dismal at 47.5. In fact, this is the fifth-straight month it is in contraction, reflecting the strong dollar and weakening global demand.

Not surprisingly, the employment subindex also looks disappointing. At 47.6, employment has fallen into contraction territory for the first time in six months. Conversely, the October ISM Non-Manufacturing Index clocked in at 59.1, beating expectations and the previous month's reading. New orders were up five points to 62.0—a very strong showing. And unlike the employment subindex for ISM Manufacturing, this employment subindex actually rose for the month to 59.2—one of the highest readings in the report's history.

On the tail of a stronger dollar and dampened global demand, it's not surprising to see September factory orders, which were also released last week, fall 1%. However, the benefit of an improving consumer or "spender"—one that faces a stronger jobs market and lower gas prices—is the continued expansion of credit-card debt (which we saw in last Friday's release of September consumer-credit data) and can't be dismissed.

It seems that even though domestic consumption is doing well, the US economy is still not firing on all cylinders. While the October jobs report dramatically increases the chance that the Fed could raise rates in December, it doesn't mean all is perfect for the US labor market or the economy. No recovery is flawless, and last week's data releases remind us of the factors that we need to follow closely because of their potential to negatively impact earnings and capital expenditures in certain industries—as well as the fortunes of certain regional economies.

Kristina Hooper is the US Investment Strategist and Head of US Capital Markets Research & Strategy for Allianz Global Investors. She has a B.A. from Wellesley College, a J.D. from Pace Law, a master's degree from Cornell University and an M.B.A. in finance from NYU, where she was a teaching fellow in macroeconomics.

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© Allianz Global Investors

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