US jobs number signals strength; Federal Reserve President hints at “higher endpoint”

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The US jobs report for October proved to be a bit of a mixed bag but showed that demand remains robust, labour market conditions are tight and participation rates remain relatively unchanged.

Despite the Fed’s hawkishness, total nonfarm payrolls increased by 261,000 in the month of October as against market estimates of approximately 200,000.

The latest numbers were a shade lower than the initial September number of 263,000.

However, in the current edition, September jobs were revised upward to 315,000 jobs.   

Commenting on the latest data, Richmond Fed President Tom Barkin noted,

Firms are still holding onto workers…and that means there’s still more work to do (for the Fed)…(goods and services) prices still have a way to go.

Barkin believes that since a bulk of companies have invested heavily in raising headcount over the past one or two years, the job market has stayed resilient.

August jobs numbers were also revised down from 315,000 in the initial print to 292,000.

However, the unemployment rate lifted from 50-year lows of 3.5% registered last month (which was reported here on Invezz) to a still tight 3.7%.

This was higher than the estimated 3.6%, but it may still be premature to assume the job market is softening.

Earlier this week, in a piece on the FOMC meeting, Powell noted that vacancies per active seeker had ballooned to 1.9 from 1.7, signalling strong ongoing workforce demand.

In another measure of job market strength, the labour force participation ratio (i.e., the rate of people in the working-age population, that are looking for work, divided by the total civilian working-age population) was measured at 62.2%, slightly lower than last month’s 62.3%, but remains well above 61.7% in October 2021.

M-o-M hourly earnings rose 0.4%, the highest increase since July, while Y-o-Y hourly earnings eased to 4.7%, the lowest in the past 12 months.

Sectoral breakdown

Job gains were led by health care, professional and technical services, and manufacturing.

Gains in manufacturing amounted to 32,000 jobs were below the year-to-date average of 37,000 but remain higher than the 2021 full-year average of 30,000.

Leisure and hospitality saw a marked rise of 35,000 positions during October, concentrated in the accommodation sub-sector.

The construction and finance sector saw little change month on month, rising by 1,000 and 3,000, respectively.

It would be interesting to see if these interest rate-sensitive sectors see a downward revision in the following report, in the light of Fed hawkishness, quantitative tightening and historic highs in mortgage rates (which I discussed in this recent article).

Employment was little affected across mining, retail, information, other services, and government.

Outlook

Regarding the Fed’s next steps, Barkin stated,

I think the implication of that is probably a slower rate of pace of rate increases, a longer pace of rate increases and potentially a higher endpoint.

The strength in labour market figures would likely push the Fed to consider keeping rates elevated for longer.

However, there are still several data releases including two CPI and a PCE report due prior to the Fed’s meeting.

Just before the announcement, the CME FedWatch Tool placed the likelihood of a 50-bps hike in December at 52% and a 75-bps increase at 48%.

However, this has now shifted more in favour of the 50 bps rise to 56.8%.

At the time of writing, equities rose initially in trading but were pulled back, with the S&P 500 and DJIA still in the black and NASDAQ about 0.3% down on the day. 

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