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US employment re-accelerated in October after a two-month long lull. Nonfarm payrolls increased +271k, way above market expectations. The unemployment rate dropped to 5.0%. Especially encouraging from the Fed's point of view is a relatively strong increase of average hourly earnings which lifted the annual rate of wage inflation to +2.5%. This report should be very much to the hawks' liking. The door for lift-off in December is now wide open.
Nonfarm payrolls increased by 271k in October, significantly above market expectations (Commerzbank forecast +160k, consensus +185k). Net revisions for previous months are relatively small, at +12k. The unemployment rate fell slightly to 5.0%. Thus, the unemployment is now almost at the FOMC's estimate of the "natural" rate which stands at 4.9%. Average hourly earnings increased +0.4%. This should be seen in the context of a stagnation in September. Nevertheless, the increase of the annual rate of wage inflation to +2.5% is certainly very welcome news in Fed circles.
This is a very solid report which goes some way laying fears of an interruption of the labor market recovery to rest. Rather low job growth in the previous two months thus seems to have been one of the (by now notorious) pauses in the current recovery process. The ongoing improvement of the labor market will, over time, see to stronger wage increases which will also put a floor below inflation.
The pieces for a lift-off at the December FOMC meeting are all falling in place. The US economy is obviously weathering global headwinds. A strong showing of the domestic economy is boosting the services sectors of the economy (which stand for 88% of gross value-added in the private economy). The problems of the manufacturing sector and the slashing of investment in domestic oil and gas drilling have not derailed the economy.
"Only very bad news in the next couple of weeks will now prevent a first rate hike at the 15/16 December FOMC meeting. The strength of the dollar is certainly causing some headaches in Fed circles. This will however not bring the Fed to delay rate hiking indefinitely. After all the relatively optimistic Fedspeak in recent days, nobody would understand if the Fed doesn't move after such data", noted Nordea Bank.
