Job creation in October bounced back from below trend growth in the third quarter. The U.S. economy generated 217K jobs versus 185K estimated. The unemployment rate marginally improved, falling to 5.0% from 5.1% and the participation was stable at 62.4%. Long-term unemployed data or U-6 data fell 0.2% to 9.8% from 10.0%, which brings the spread between the U-3 and U-6 data to levels not seen since September 2008. The advancement in the long-term underemployed suggests labor slack is slowly abating. Another encouraging sign from the report was the 2.5% YoY increase in hourly earnings, which is the biggest gain in the last six years. The October jobs report suggests the U.S. economy is showing resilience from the impact of a rising dollar, reduced export growth and job losses in the oil and mining sectors. The oil and mining sectors were the only job groups that saw losses in the report. In fact, according to the BLS, the oil and mining sectors have lost about 109K jobs since reaching a peak back in December 2014. Overall, the report was highly encouraging and supports a December FOMC lift-off from the zero lower bound. Market based indicators place a 70% chance that the Federal Reserve will hike the Federal Fund Rate in December, up from approximately 55% last week. Let’s not forget that while the job report did show job growth and wage gains, overall inflation remains muted and well below the 2.0% PCE the Federal Reserve is targeting. At this point in the business and interest rate cycle, when lift-off occurs is less important than the pace of future interest rate increase. The trends of mild to moderate economic and job growth and low inflation supports the slow pace of future interest rate increases and a terminal interest rate potentially below where prior interest rate cycles ended.
Source: U.S. BLS and SNWAM