Fed still on course for December hike after jobs report

After a couple of months where the figures were distorted by hurricanes, this report was eagerly anticipated. However, there were still surprises: non-farm payrolls rose by a stronger-than-expected 228,000 in November (195,000 expected) whilst wage growth remained subdued at 2.5% year-on-year (2.7% expected).

It is quite possible that weather effects are still skewing the numbers, but it looks very much as though the combination of robust job growth and subdued wages continues.

Still some spare capacity

We have focused on the employment/population rate as a measure of labour market slack and this fell from 60.2 to 60.1, indicating that the steady increases in participation seen earlier in the year may have temporarily stalled.

The rate remains well below pre-crisis levels and is consistent with some spare capacity, unlike unemployment which at 4.1% is still signalling a tighter labour market.

On course for December rate hike

As far as the Federal Reserve is concerned this report will not change the likelihood of a rate rise next week with a 25 basis point hike expected. We look for three rate hikes in 2018, although expect to see greater inflationary pressure from wages during this period.