Strong payroll report makes December even more "live"

Non-farm payrolls increased by 271k in October, well above expectations for a 185k gain. Revisions to the previous two months added 12k to the tally.

Private payrolls rose by 268k, also above consensus by a wide margin. Goods-producing industries had a decent month, adding 27k on strong construction (+31k) hiring, while manufacturing remained flat. Government payrolls also added as modest gains in state and local hiring (+5k) were somewhat offset by lower federal payrolls (-2k).

The unemployment rate ticked down 0.1 percentage points to 5.0% in line with consensus. as strong household employment growth outpaced the gain in the labor force. The labor force participation rate remained unchanged at 62.4%.

Average hourly earnings rose 0.4% during the month, beating expectations for a 0.2% gain. The year-over-year measure accelerated from 2.3% to 2.5% in October. Average weekly hours remained unchanged at 34.5.

After a pronounced deceleration over the past two months, this morning's highly anticipated employment report blew expectations out of the water. The report suggests the U.S. economic recovery has hardly skipped a beat despite the many external headwinds, with weakness largely constrained to the manufacturing and mining sectors.

Aside for the strong headline payroll print, the most encouraging aspect of the report is the apparent pickup in wage growth. The measure has been stuck in the 2% to 2.3% y/y range for years, with the 2.5% October print marking the fastest wage growth in over six years.

Also encouraging was the continued decline in measures of labor slack. The headline jobless rate is now effectively at a level the Fed considers natural, while the 0.2pp improvement to below 10% in the broader measure (U6) which includes marginally attached and those working part-time for economic reasons, suggests the improvement is more widespread.

"Given the strength of this report, we expect the onus is going to increasingly fall on the data to dissuade the Fed from raising rates when the FOMC meets in mid-December. The market is now pricing the probability of such outcome at around 72%, and we see no reason to disagree with such assessment", says TD Economics.