LIVE MARKETS-You better work: A jobs report deep dive

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YOU BETTER WORK: A JOBS REPORT DEEP DIVE

The October employment report, on the surface of things, breezed right past expectations.

So will the market eat it up, as evidence of robust economic health? Or, conversely, will it be interpreted as carte blanche for Fed rate hikes?

Getting down to business, the US economy added 165,000 jobs last month, beating consensus by a cool 100,000.

On top of that, September payrolls were upwardly revised by more than double the original figure, to 60,000 from 29,000, and August's number was boosted by nearly 40% to 186,000.

This marks the fifth month of job adds north of 100,000 over the last 12 months, and the fifth surprise to the upside over the same period.

Peeking under the hood, the 144,000 increase in the often lower-wage services sector was responsible for 90.6% of the 159,000 private-sector job additions. Goods-producing and manufacturing sectors added 15,000 and 19,000 jobs, respectively. The construction sector shed 3,000 workers.

Government payrolls grew by 6,000.

"The strong gain in non-farm payrolls, upward revisions to past increases, and the drop in the unemployment rate all underline that labor market conditions are gradually tightening," writes Matthew Martin, senior US economist at Oxford Economics. "That frees up the Federal Reserve to focus on inflation."

Speaking of the devil, the wage growth element gave markets their first glimpse of October inflation. That data showed average hourly wages picking up steam, growing 0.4% monthly increase, hotter than the 0.3% consensus. Year-on-year, wages cooled down to 3.1% from September's upwardly revised 3.2%. Economists predicted annual wage growth of 2.9%.

"With yearly wages at 3.1% on a yearly basis, that just confirms that the Fed has no choice but to raise rates in December," Peter Cardillo, chief market economist at Spartan Capital Securities, tells Reuters. "The question is, do they raise by 25 basis points or by 50 basis points?”

Indeed, following the unexpectedly strong report, financial markets are currently baking in a 77.1% likelihood of a rate hike at the conclusion of the Fed's December meeting, up from 66.9% yesterday, according to CME's FedWatch tool.

Remember, however, that annual wage growth is cooler than the most recent 3.7% headline CPI reading. That means real wage growth remains in negative territory, where it's been since April. That bodes ill for consumers, who carry about 70% of the US economy on their shoulders.

Elsewhere in the report, the uptick in the labor market participation rate — to 61.9% from 61.8% — is a step in the right direction.

It also makes the drop in the unemployment rate USUNR=ECI— to 4.1% from 4.2% — all the more impressive.

"A fall in unemployment amid rising participation rates tells me that the labor market is tight, so we should expect wages to rise as firms compete for workers," says Jeffrey Roach, chief economist at LPL Financial.

Increasing participation typically puts upward pressure on the jobless rate; when workers are on the sidelines, they're not considered unemployed.

But lest we get too excited, the labor market participation remains low by historical standards.

But the report wasn't all lollipops and rainbows.

The average unemployment duration jumped to 28.1 weeks from September's 25.4. That's the longest since November 2021.

It's a volatile metric that has been zig-zagging higher over the last two years, and corresponds with the general downward trend of jobs confidence reflected in consumer survey data.

Another downer is the rise in the "underemployed" (sometimes called "real unemployment"), which is defined as workers who are only marginally attached to the labor force, or working part-time. That metric increased to 7.9% from 7.6%.

"More jobs doesn’t always mean better jobs," says Nicole Bachaud, economist at ZipRecruiter. "Wage growth is still trailing inflation, and more workers who want full-time jobs are stuck in part-time roles."

Finally, broken down by race and ethnicity, joblessness among White workers inched higher, to 3.7% from 3.6%, remaining well below the national average. Unemployment among those who identify as Hispanic held at 4.7%, while Asian unemployment dropped to 2.8% and the jobless rate among Black workers eased by 0.4 percentage points to 6.6%, or 2.5 pps above the national average.

Taken together, the White/Black jobless gap narrowed to 2.9 pps, from 3.4 pps a month ago.

(Stephen Culp)

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