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Strong U.S. Nonfarm number raises odds of December Fed lift-off - Scotiabank

FXStreet (Delhi) – Research Team at Scotiabank, notes that the U.S. labor market looks to have solidified, likely paving the way for a December hike in the Federal Funds rate.

Key Quotes

“Nonfarm payrolls surprised to the upside by quite a bit, hitting 271k in October (vs. expectations for 185k print).”

“The moving average of nonfarm payrolls is improving. The three month nonfarm payroll average is 181k (+12k were added on net to Sept. and Aug. via revisions), not the highest number seen in recent years, but easily strong enough to meet the Fed’s criteria for an improving labor market and thus raising the Fed Funds rate in December. Coupled with already observed readings on inflation and GDP, and barring a major revision to domestic economic data to the downside or a major international economic crisis materializing in the next month, today’s nonfarm number means that the odds have to favor a Fed hike in December.”

“The details were strong. Average hourly earnings were up by 0.4% m/m. Aggregate wages (i.e. total wages paid as opposed to wages per hour) were up by an even stronger 0.6% m/m. Aggregate weekly hours were up by 0.3% m/m. More Americans were getting paid higher wages.”

“By sector, the gains in nonfarm payrolls were pretty lumpy with some important sectors posting soft prints. On the plus side, construction added 31k jobs, trade added 51k jobs, business services added 78k jobs (among them 25k temp services jobs), education and healthcare added 57k jobs, leisure and hospitality added 41k jobs. Government (+3k), information (-1k), financial services (+5k), and manufacturing (0) were weak.”

“The unemployment rate continues to fall. Turning to the household survey from which the unemployment rate is derived, the labor force increased by 313k, household employment increased by 320k, and the unemployment rate fell to 5% from 5.1%. The participation rate was flat at 62.4%.”

“The U-6 ‘all in’ unemployment rate improved as well, hitting 9.8% down from 10% as the U.S. labor market continues to heal following the crisis. This month saw a bid drop in people who were working part time for economic reasons (i.e. they can’t find full time jobs) of 269k, driving the improvement in U6.”

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