Key Points

  • The October jobs report was, on balance, a strong one.
  • Weather may have dented the headline number, but the prior months’ revisions were strong.
  • Wages are accelerating (via every measure), lending credence to the consensus of a December rate hike.

Given election-related distractions this week, today’s report will be chart-heavy and word-light; but on an important topic. Last Friday’s jobs report garnered much attention given its proximity to the next Federal Reserve meeting. But it’s not the only report preceding the December Fed meeting—there is one more in December (incorporating November’s data).

Remember, the Fed operates with a dual mandate, including not only full employment but also price stability—the latter defined as the Fed’s 2% inflation target. The connection between the two mandates is often bridged by wages, which I’ll highlight below as well.

Details were mostly stronger

In the aggregate, Friday’s jobs report was fairly strong; with an October headline payrolls gain of 161k underperforming the consensus expectation of 173k; but the details coming in stronger. On the positive side were revisions of 44k to the prior two months’ data. Payroll gains have averaged 181k for far this year—down from 229k in 2015, but still healthy. Caveat: we are in a more mature phase of the economic expansion, so payroll growth is expected to continue to slow. Below you can see a three-month moving average of payrolls, which remain fairly strong.

Monthly change in nonfarm payrools

Source: Bureau of Labor Statistics, FactSet, as of October 31, 2016.

The unemployment rate fell 0.1 point to 4.9% (see chart below), which was in line with forecasts—although here some of the details were weaker as the participation rate dropped one-tenth and the household survey employment series fell by 43k.

U-3 Unemployment Rate

Source: Bureau of Labor Statistics, FactSet, as of October 31, 2016.