US Outlook Report: It’s All About The Jobs
There were more hits than misses this week with the U.S. economic indicators. The October jobs report revealed a solid improvement in job creation from the prior two months, solidifying expectations for better economic growth in the fourth quarter. This will likely trigger an initial interest rate hike from the Federal Reserve in December and an acceleration in U.S. dollar appreciation and interest rate increases. The Treasury yield curve shifted up from the 2-year to the 10-year maturities by 7 to 11 basis points this morning in response.
Nonfarm payrolls increased by a better than expected +271K last month, while the unemployment rate dropped to 5.0% from 5.1% in September. Income growth accelerated with average hourly earnings increasing a robust 0.4%, pushing the year-on-year growth rate to 2.5% from 2.3% a month before.
Bottom-line, the economic indicators for October likely met or surpassed the Fed’s sniff test on the resilience of the U.S. expansion. This week we can add the October payroll report, ISM Non-manufacturing purchasing managers index (that unexpectedly jumped to 59.1 from 56.9), and a blowout unit vehicle sales report (at 18.12 million units for October) to the positive column for the U.S. economy. The probability of a December rate increase continues to rise. The Fed Funds futures market is currently pricing in a 72 percent probability of a December liftoff from the Federal Reserve. As Janet Yellen told Congress this week, a December rate hike is a “live possibility.”
Next week, retail sales and the producer price index for October will get some close scrutiny from the markets and the Fed. We expect a rebound in retail sales on the month with a mixed reading on the PPI. Neither release is likely to change minds on the FOMC on the timing of the first interest rate hike. The preliminary University of Michigan Consumer Sentiment index for November will be watched as well to see if the consumer is going to show up for the all-important holiday shopping season.
To learn more, check out this week’s US Outlook Report.
Tags: economy, jobs