The Bureau for Labor Statistics reported employment figures for September. For the month, the economy added 661,000 jobs. Two notable developments were weakness in government hiring, and workers leaving the labor force.

From the depths in the Spring, the economic recovery has surprised most people in terms of its speed and intensity. Additionally, the economy proved to be pretty resilient as aggregate demand has not been affected with weakness in virus-affected sectors like dining, travel, and hotels offset by strength in other sectors like consumer spending, housing, and tech.

Of course, a major factor has been the aggressive dose of fiscal and monetary stimulus. Much of the CARES package has now expired, and there are indications of financial stress in terms of missed payments and consumer spending flattening. However, it's largely expected that some sort of CARES II is going to pass in the coming weeks, and this report may increase the urgency.

Inside the Numbers

Analysts were looking for a gain of 800,000 jobs. The unemployment rate did drop more than expected to 7.9%, however, this was largely due to a decline in labor force participation.

The weakest part of the report was government hiring. The private sector added 877,000 jobs, so governments cut more than 200,000 jobs. This is not totally surprising since state and local governments are dealing with a situation in which much of their tax base has been decimated.

Stock Price Impact

Going into the jobs report, the S&P 500 (SPY  ) was lower by 1% on President Donald Trump's positive Covid-19 diagnosis. The weak number resulted in another 1% drop. However, stocks did recover some of these losses on positive chatter about the prospects of a second stimulus package.

It seems likely that this report does marginally increase the odds of another stimulus package passing soon. Given President Trump's standing in the polls, he has every incentive to pass something to improve his odds of reelection. Democrats are concerned about the coronavirus's impact on state and local governments' finances, so this is another indication that something needs to be done, or job losses will continue in this area.

We are seeing some subtle indications that the market is expecting another package soon. Small-caps are outperforming, while tech is lagging. It's likely that another stimulus package will cause growth expectations and interest rates to rise. This would lead to a rotation from growth into value and benefit depressed sectors like financials and energy.