Mixed Jobs Report, but Unlikely to Deter Expectations for Fed Hike

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The US dollar has slipped lower in response to the jobs data, but quickly recovered.   The details are mixed, but is unlikely to change views on the outlook for Fed policy.  

The headline job creation was in line with expectations at 178k.  Job growth of the back two months were shaved by 2k, concentrated in October.  The unemployment rate dropped to 4.6%, the lowest since 2007.  The underemployment rate fell to 9.3% from 9.5%, the lowest since 2008.   The declines were larger than one would have expected if driven by the decline in the participation rate, which slipped to 62.7% from 62.8%.  

The notable disappointment lies with average hourly earnings.  Rather than rise 0.2% on the month, they fell by 0.1%, which brought the year-over-year rate back to 2.5% from 2.8%.  The long-end of the curve likes the lower wage pressure, with the 10-year yield slipping 3-4 bp.

Today’s report is unlikely to force a re-think by investors on either the trajectory of Fed policy or the outlook for the US economy.  There may still be some scope for upward revisions to Q3 US GDP, and Q4 is tracking above the rolling four-quarter average.

Canada reported its jobs data as well.  The headline job growth of 10.7k jobs overstates the case.  Canada lost 8.7k full-time positions after losing 23.1k in October.   Part-time positions grew by 19.4k.  Unlike what we saw in the US, the full decline in Canada’s unemployment rate to 6.8% from 7.0% can be fully explained by the drop in the participation rate (65.6% vs. 65.8%).