Labor Analysis

November 6th, 2015 11:19 am | by John Jansen |

Via TDSecurities:

TD SECURITIES DATAFLASH
US:  Labor Market Flashes Green for the Fed to Hike in December

*        The US economy added jobs at a robust 271K pace in October. This is well ahead of the market consensus for a more modest 185K gain and it marks the fastest pace of jobs growth since December last year.

*        The details of the report were equally impressive with strong gains in wages, aggregate hours and household employment all underscoring a reversal in labor market momentum.

*        The broad-based improvement checks all the boxes that the Fed will need to feel comfortable raising rates in December. We now see this as the most likely outcome and are formally shifting our forecast to expect the first rate hike at the next FOMC meeting.
The US economy added jobs at a very impressive 271K pace in December. This was a far stronger performance than the market consensus for a modest 185K gain and it marks the fastest pace of employment growth since December of last year. Net revisions were also modestly positive at 12K, suggesting a slightly better performance over the past few months than previously thought. Beyond the headline payrolls number, household employment was also up strongly, gaining 320K jobs. And despite the 313K gain in the labor force, the unemployment rate declined to 5.0% from 5.1%. Other aspects of the report were quite encouraging, with gains in aggregate hours (up 0.3% m/m following the 0.2% m/m decline the month before) and a very brisk 0.4% m/m rise in average hourly earnings after essentially stalling the month before. On a year ago basis, average hourly readings accelerated to a healthy 2.5 y/y pace from 2.3% y/y.
At the sectoral level, there were strong gains in the pro-cyclical sectors of trade (up 51K), business services (up 78K), construction (up 31K) and hospitality (up 41K). In all, the private sector added a fairly healthy 268K jobs with the public sector adding a further 3K. Indicators of labor resource also pointed to an acceleration in the pace of slack absorption in the labor market, with the augmented unemployment rate falling from 10.0% to 9.8% – resulting in some further narrowing in the unemployment gap. Furthermore, the share of workers employed part-time for economic reasons slipped to 9.5% from 9.5% in September, and is down from 10.8% in June. The median unemployment duration declined further, falling to 11.2 weeks from 11.4 weeks, though the average duration rose to 28.0 weeks from 26.3 weeks.
On the whole, this is a very impressive report and it checks all the boxes that the Fed will need to feel comfortable about raising rates in December. In conjunction with fading EM growth fears and a sufficient amount of momentum in the domestic economy reflected in this report and other data, there is a higher likelihood that underlying inflation will return to the 2.0% objective over the medium term. As a result, we have pulled forward our call for the first hike to the December meeting. The wider implications for financial markets from this change will be outlined in an upcoming note. Stay tuned.

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