The US generated 214k new jobs in October, and back revisions bump that total up by another 31k.The annual increase in jobs is 1.93%, the fastest rate of job creation since 2006. The unemployment rate fell to 5.8%, average hourly earnings growth slowed to 2%, and to 2.2% for the old ‘non-supervisory’ series. The household survey saw employment jump by an outsize 683k, which is 2.6% higher than a year ago. One picture to sum it up is attached.
The 1.9% employment growth is better than the average of the last 50 years, but the gap between that and the 2.35% increase in real GDP over the last year, is pathetic. That, along with the lack of wage growth, and the number of part-time or limited hours jobs, provide the colour – namely that the employment growth is good news but not likely to spur a significant acceleration in GDP growth. or in wage growth, or in inflation.
In short, this is a jobs report which provides comfort that GDP growth will continue at a respectable rate, but it does little to change the underlying debate about NAIRU, the Phillips Curve, wage pressure, inflation pressure, slack and Fed policy. I still think the Fed should have got rates higher a while ago, and many readers will still disagree and wonder why the Fed should bother hiking rates at all in 2015 if the unemployment rate down here, doesn’t do anything to wages.
For markets: The jobs will help cement 3% real GDP growth forecasts for 2015. and if that is still a Fed/consensus view in January, the odds of a mid-2015 rate hike will be very high. That in turn, is the key to unlocking more dollar strength. US 1y/1y rates are now 3bp lower than they were yesterday. So there’s nothing to spook EMFX, or equities or the Euro, or the Yen, at this point. But I still think the 1y/1y will get much closer to 2% (from 1.14%) by the time winter ends.
Finally, FX weekend reading comes from the FT’s 5-part series on the UK’s balance of payments. It’s strong stuff, that provides sustenance through the winter forCableBears..