October jobs growth supports December 'lift off'
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
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.
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