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Chris Martin marches with Local 5285 in the Charlotte Labor Day Parade ahead of the Democratic National Convention in Charlotte, North Carolina in this September 3, 2012 file photo. The U.S. Unemployment rate dropped to a near four-year low of 7.8 per cent in September, a potential boost to President Barack Obama's re-election bid. (JESSICA RINALDI/Reuters)
Chris Martin marches with Local 5285 in the Charlotte Labor Day Parade ahead of the Democratic National Convention in Charlotte, North Carolina in this September 3, 2012 file photo. The U.S. Unemployment rate dropped to a near four-year low of 7.8 per cent in September, a potential boost to President Barack Obama's re-election bid. (JESSICA RINALDI/Reuters)

With surprise jobs data, does U.S. still need more stimulus? Add to ...

The U.S. monthly payrolls report continues to grab a lot of attention when it is released, and Friday’s report on September payrolls is no exception: A few upbeat surprises in the report helped drive the S&P 500 up about 10 points in early trading.

While overall job gains of 114,000 were no surprise, given economists had been expecting 115,000, the unemployment rate slipped to 7.8 per cent from 8.1 per cent in August, the lowest rate since early 2009.

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That’s a big decrease, and while previous decreases in the unemployment rate were shrugged off as an indication that more unemployed Americans were simply giving up looking for work, this one isn’t. That’s because payrolls numbers for the previous two months were revised higher by 86,000. And, the separate household survey showed that total employment rose by 873,000 in September and the labour force participate rate rose to 63.6 per cent.

So it’s all good news, or is it? Investors have a lot to digest here. At what point do job gains push the Federal Reserve into withdrawing its extraordinary stimulus efforts? And if Mitt Romney is Wall Street’s candidate of choice, what does a strong jobs report prior to the U.S. election do for Barack Obama’s re-election chances?

Here are several reactions to help make sense of it all.

Stéfane Marion, National Bank Financial: “In the U.S., the report suggest a job market in “goldilocks” mode for financial markets: strong enough to support domestic demand, but weak enough to justify QE. Risk-on is the mantra of the day!”

Paul Ferley, Royal Bank of Canada: “The Fed will likely remain wary about the stronger pace of job growth being sustained given the volatility in this measure over the first half of the year and the weakening in payrolls that occurred in September. Thus the Fed is expected to continue to keep monetary conditions highly accommodative.”

Chris Jones, Toronto-Dominion Bank: “The drop in the unemployment rate to 7.8 per cent is an anomaly that is unlikely to be sustained. The household survey reported job gains nearly 8-times that of the establishment report. History suggests that when these two reports move wildly out of line – as they have done today – the gap ultimately corrects. Either that means we will stronger upward revisions in payroll growth over the next few months, or the unemployment rate will ultimately be revised higher.”

Paul Ashworth, Capital Economics: “Even allowing for the normal volatility in the household survey, those are big moves. It means the unemployment rate has now fallen by 0.5 per cent in two months. That probably doesn’t qualify as the substantial improvement the Fed is looking for, but it would do in the unlikely event that this rate of decline continued.”

Andrew Grantham, CIBC World Markets: “With the unemployment rate now below 8 per cent for the first time in almost four years, it has suddenly got a lot closer to the 7 per cent level at which policymaker projections suggest the FOMC could start removing stimulus.”

Sal Guatieri, BMO Nesbitt Burns: “An overall better-than-expected jobs report, consistent with most recent data that suggest the economy is gaining some momentum. The sizeable drop in the unemployment rate could lift the President’s re-election chances following a post-debate dip.”

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