No Surprises Keeps the Fed on Track for a December 14 Rate Hike
- Payroll Employment increased by 161,000 jobs in October, dampened by Hurricane Matthew.
- The Unemployment Rate for October eased back to 4.9 percent.
- Average Hourly Earnings increased by 0.4 percent for the month, up 2.8 percent for the year.
- Average Weekly Hours were steady at 34.4 in October.
U.S. nonfarm payrolls increased by a net 161,000 jobs in October, a little shy of the near-173,000 consensus. According to the Bureau of Labor Statistics, the data in parts of the East Coast was likely impacted by Hurricane Matthew. August and September job gains were revised up, so the average gain for August through October now stands at 176,000 net new jobs per month. After strong growth through the summer, the labor force declined in October by 195,000 workers. This helped pull the U.S. unemployment rate back down to 4.9 percent, after increasing to 5.0 percent in September. The average workweek was unchanged at 34.4 hours. Average hourly earnings in October were up 10 cents for the month, to $25.92, and were up 2.8 percent over the previous 12 months. Establishment data was a little quirky. Oil and gas extraction shed 2,300 jobs despite the recent gain in the rig count. Construction gained 11,000, a little light. Manufacturing employment dipped by 9,000 jobs, with losses in machinery. Wholesale trade employment was up by 6,300. Retail trade employment fell by 1,100 jobs, possibly weather related. Financial services added 14,000 jobs. Professional and businesses services was solid, gaining 43,000 jobs. Same with educational and healthcare, up 52,000 jobs. Leisure and hospitality industries expanded by 10,000 jobs. The government sector added 19,000 jobs.
There is nothing surprising in the October Employment Report that would cause the Federal Reserve to delay a fed funds rate hike beyond December 14. However, between now and December 14 the Fed will see a great deal of economic data, including the November Employment Report, which will be released on Friday, December 2. Barring a calamitous turn of events, it appears to be very likely that we will see a fed funds rate increase in December. The fed funds futures market shows the implied probability of a December rate hike at 76.3 percent.
The U.S. international trade gap narrowed in September to -$36.4 billion. There should be little net impact on the initial estimate of the Q3 GDP data, which contained an estimate for September trade. Nominal imports decreased by $3 billion while nominal exports increased by $1 billion in September.
Market Reaction: U.S. equity markets opened with gains. The 10-Year T-bond yield is down to 1.78 percent. NYMEX crude oil is down to $44.46/barrel. Natural gas futures are flat at $2.95/mmbtu.
For a PDF version of this Comerica Economic Alert click here: Employment 11-04-16.