This result sees jobs growth back to a solid upward trend, supporting our view that solid consumer spending will continue to be the back-bone of above-trend GDP growth in the period ahead. That tips the scales further in favour of a December “lift-off” for interest rates. Indeed market-based probability of a hike in December now sits at 68%.
Average hourly earnings were up +0.4% in the month for an annual increase of 2.5%. The unemployment rate is now within the Fed’s central tendency for full-employment and the broader U6 measure of labour market is slack is now at 9.8%, its lowest level in five-and-a-half years.
The Federal Open Market Committee will see this for what it is – an unambiguously strong result. We know the Committee, either rightly or wrongly, operates within a Phillips Curve framework. So a combination of diminished labour market slack and rising wages will have them itching to tighten. Barring any data-disasters between now and mid-December, a rate increase before Christmas is looking like a done deal.