US nonfarm payrolls increased by 271k in October, the largest rise since December 2014, with cumulative upward revisions for August and September of 12k. Civilian household employment gained 320k, while the civilian labor force rebounded by +313k with the participation rate rising slightly to 62.43% from 62.36% in September. As a result, the unemployment rate improved marginally in October to 5.0% from 5.1% in the prior month, reversing May-to-September's trend where the cumulative improvement in the unemployment rate (-0.4 pps to 5.1%) was due to a decline of 754k in the labor force which cut back the participation rate to multi decade lows.
Average hourly earnings increased by a higher than expected 0.4%MoM, boosting the annual rate of growth to a 6-year high of 2.5%, from 2.3% in September. The above acceleration was a very important aspect in the positive tone of October's US employment data, given that wage growth has been subdued for a long time in spite of the downtrend in the unemployment rate and the general improvement in labor market conditions. Headline CPI rose in October (+0.2%MoM, +0.2%YoY) after two consecutive monthly declines, as energy prices rebounded. Core CPI also increased 0.2%MoM (1.9%YoY), with broad based strength in core services. Nevertheless, the strong US dollar and low import prices continued to weigh on core goods prices.
Although the FOMC's 29 October minutes revealed differences of opinions on US monetary policy between presidents of the regional Federal Reserve Banks, it seems that barring an unanticipated shock that would adversely affect the growth outlook, the Fed is ready to embark on a rate tightening cycle at the next policy meeting on December 15-16. The majority of policy members judged that downside risks from the world economy and global financial markets "had abated" and the pace of rate tightening ahead will be gradual, dependent on the outlook of the domestic economy.
