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October jobs growth supports December 'lift off'

09 November 2015
jobs growth
After a couple of soft months US jobs growth bounced back with a vengeance in October.  Non-farm payrolls rose +271k over the month, well ahead of average market expectations of +180k.   Adding to the strength in the result, the unemployment rate dipped lower to 5.0% and wage growth blipped higher.

US labour market
Source:  US BLS

This result sees jobs growth back to a solid upward trend, supporting our view that solid consumer spending will continue to be the back-bone of above-trend GDP growth in the period ahead.  That tips the scales further in favour of a December 'lift-off' for interest rates.  Indeed, market-based probability of a hike in December now sits at 68%.
Average hourly earnings were up 0.4% in the month for an annual increase of 2.5%.  The unemployment rate is now within the Fed’s central tendency for full employment and the broader US measure of labour market slack is now at 9.8%, its lowest level in five-and-a-half years.

US wages and inflation
Annual % change
Source:  BLS
The Federal Open Market Committee will see this for what it is – an unambiguously strong result.  We know the Committee, either rightly or wrongly, operates within a Phillips Curve framework.  So a combination of diminished labour market slack and rising wages will have them itching to tighten.  Barring any data disasters between now and mid-December, a rate increase before Christmas is looking like a done deal.
This blog post has been prepared to provide general information and does not constitute 'financial advice' for the purposes of the Financial Advisors Act 2008 (Act). An individual investor should, before making any investment decisions, consider the information available in the relevant Product Disclosure Statement and seek professional advice. While every care has been taken in the preparation of this document, AMP Capital Investors (New Zealand) Limited and the AMP Group (together, 'AMP') make no guarantee that the information supplied is accurate, complete or timely and do not make any warranties or representations in respect of results gained from its use. The information is not intended to infer that current or past returns are indicative of future returns. The views expressed are those of the author and do not necessarily reflect those of AMP. These views are subject to change depending on market conditions and other factors.

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