Last week, the Bureau of Labor Statistics released non-farm payrolls and employment data for the month of October, showing a net increase in payrolls of 204k, well above consensus estimates of a 120k increase. In addition, the past two months saw a positive revision of 60k. The labor participation rate dropped 0.4% to 62.8%, the lowest level since 1978, and the unemployment rate ticked up to 7.3% from 7.2%, due to effects from the government shutdown. Hours worked were flat, but average hourly earnings increased 0.1% m/m, which represents 2.2% growth y/y. This metric, which we view as a leading indicator of inflation, is at the high end of the recent range. Underlying data shows that strength in manufacturing surveys may be finally flowing through to jobs data, as manufacturing payrolls added a net 19k jobs versus 4k last month, the highest for this sector since February. While the low expectations for payroll additions going in were partially based on an anticipated drag from the federal government shutdown, it appears that the impact was on the unemployment rate, not on the non-farm payroll additions (note that these data sets are generated from separate sources). The three-month moving average for non-farm payroll gains is now at 201k versus a 166k three-month average when the Fed met in September. This strength has increased the chance of a December taper, and the market is certainly pricing that increased probability into rates, as the 10-year Treasury note moved up about 13bps after the release. We have been repositioning portfolios for this type of market action, and will continue to prepare for opportunities in the market as the data evolve.