US employment growth expected to improve modestly in October

For the October employment report, scheduled for release on Friday, November 6, Headline payrolls is expected to rise by 175k, private payrolls to increase by 160k, and government payrolls to expand by 15k. Relative to the 142k pace of payroll growth in September, the forecast is consistent with the recent reduction in financial market stress. Other factors point to an improvement in payroll growth over the 142k and 136k rate of expansion in September and August, respectively, including initial and continuing claims. The four-week moving average of initial jobless claims fell modestly in the October survey week, as did continuing claims. Jobless claims data continue to signal that soft external activity is not causing firms to shed labor, but it remains to be seen how quickly firms will resume a more robust pace of hiring.

"We expect the unemployment rate to decline by one-tenth, to 5.0% (5.051% rounded to three decimals in September); average hourly earnings to rise by 0.3% m/m; and average weekly hours to remain unchanged at 34.5",estimates Barclays.

Payroll growth is likely to keep many on the committee comfortable with signaling that a rate hike at the December meeting is reasonable, as would a stronger-than-forecast print. Payroll growth at a pace similar to or lower than observed in August-September is likely to raise concerns that external developments are weighing more heavily on hiring than expected and could cause some on the committee to seek more time to allow activity and labor markets to recover further before initiating a rate hike cycle.

"Although the committee removed the language from the statement referring to global economic and financial developments and their effect on activity and inflation, the October statement indicates that the committee still has a watchful eye on global developments and their effect on the US outlook",added Barclays.