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11 04 2016 | by Victor Xing | Economics

October Payrolls: decent data with stronger wage growth

October Payrolls

The October Payrolls came in below expectations at 161,000 vs. 173,000 survey, although net revision for prior two months rose by 44,000 to offset the miss.  The headline U3 unemployment rate declined to 4.9%, and the U6 broader unemployment rate declined to 9.5% from 9.7%.  Involuntary part-time workers as a percentage of labor force remained largely unchanged at 3.69%:

October Payrolls
U3, U6 and involuntary part-time workers

A decline in participation rate is a usual suspect behind any drops in the unemployment rate.  This is partly true in October, as the aggregate participation rate declined to 62.8% from 62.9%.  However, the prime age (25-54yr cohort) participation rate rose to 81.6% vs. 81.5% prior.  This is an encouraging development to policymakers, who put a heavier weigh on younger and borrower-centric age cohorts:

October Payrolls
Aggregate vs. prime-age participation rate

Average hourly earnings was the highlight of the October jobs report.  A monthly wage growth of 0.387% easily beat the 0.3% consensus, and the 2.82% YoY growth was not seen since 2009:

October Payrolls
Average hourly earnings

Long-term unemployed as a percentage of total unemployed rose slightly to 25.2% vs. 24.9%, and Employment-population ratio declined a touch to 59.7% vs. 59.8% prior.  Nevertheless, these retracements did not detract from an otherwise decent report.

Fed policymakers were largely optimistic about the latest data, and stronger wage gains were perceived as conducive to a December rate hike, barring any data or macro surprises (the U.S. presidential election is nevertheless a risk factor)

  • Fed Vice Chair Fischer commented on “a pretty good year” for labor market conditions, and he sees a 5% unemployment rate can be maintained with monthly job gains between 125,000 to 175,000, assuming a flat labor market participation rate. In his view, the Fed is “pretty close” on its dual mandate, and the latest wage data was “quite a sharp step up”
  • Atlanta Fed President Lockhart sees the economy approaching full employment, and the central bank is close to achieving its policy objectives. In terms of a December rate hike, President Lockhart sees a “relatively high bar, at least in pure economic terms, to not moving in December.”

Next article11 02 2016 | by Victor Xing | Central Banks

November FOMC: forward guidance and the return of “some”