U.S. NFP Shows 161K Jobs Gain; Wages Rise by 2.8% — The highest pace in years

The U.S. non-farm payroll fell a bit short of market expectations with a gain of 161K jobs in October: The ADP estimated a gain of 147K jobs and the market expect a gain of 174K. But despite the lower-than-expected gain in jobs, the rest of the report was solid with higher wage growth and lower unemployment rate. Let’s review this report:  

The U6 unemployment measurement, a broader measure of unemployment, dropped to its lowest level in months of 9.5%. In terms of revisions, there was a total upward revision of 44K for September and August combined.

In October, the rate of U.S. unemployment was 0.1 percent points below the rate recorded in October 2015.

The number of unemployed persons (7.787 million) dropped by 152K in October compared to the previous month. And the civilian labor force also decreased by 195K. So there was a decline in number of people participating in the labor force and in the number of unemployed. In the end, the participation rate edged down to 62.8%.

Finally, wages rose in October compared to September – the hourly earnings reached $25.92 per hour — a gain of 10 cent or 0.4%, month over month –higher than expected (exp. were for 0.3% gain); wages grew at an annual rate of 2.8%, year on year – the fastest pace in years.

Takeaway

The NFP report was solid and showed the gain in wages that the Fed was waiting for. Now it all comes down to whether the labor market will show higher wage growth – which will support the Philips curve model and perhaps it’s not so flat as some may have considered in the past – in the near term. If this isn’t a “one-off” and the December report reaffirms this conclusion, then the Fed will be more incline to raise rates coming December.

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