U.S. non-farm payrolls rebound in October, Fed likely to hike rates in December

Non-farm payrolls in the U.S. recovered in October. Payrolls rebounded to 261k positions in the month, after hurricane-related disruptions held back job growth to a mere 18,000 in September. Still, the jobless rate dropped even lower to 4.1 percent. Given the disruptions from the hurricanes, the details of the payrolls report should be taken with a grain of salt, noted TD Economics in a research report.

Employment in food services and drinking places surged over the month, mostly countering drops in September that reflected the effect of the hurricanes. Business services and education and health sector hiring continued to be strong. Employment accelerated on the goods side as well, rising to 33k new jobs on healthy hiring in manufacturing.

On the household side, the fall in jobless rate is less positive given that it was driven by a huge fall in the labor force. The participation rate dropped to 62.7 percent, and has shown slight movement in the past 12 months. Meanwhile, the average hourly earnings remained the same in October, taking the year-on-year rate to a modest 2.4 percent.

Given September’s hurricane-related payroll disappointed, the bar was set high for October, and on the surface September fell short. But, revisions in the past two months totaled 90k jobs, should vanquish any disappointment, stated TD Economics.

The strong recovery, along with the solid economic momentum in the third quarter, certainly argues for a rate rise by the FOMC in December. But core inflation is still yet to see a notable rise and also wage growth has disappointed.

“We expect that Yellen will still be comfortable taking rates another 25 bps higher in what will likely be her second last meeting as Chair”, added TD Economics.

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