Prior Week Summary
The jobs report surprised to the upside last week, as the labor market added 250,000 positions in October, relative to a consensus expectation for a gain of 200,000. The headline unemployment rate was unchanged at 3.7%, while the underemployment (U-6) rate improved by 0.1% to 7.4% during the period, tying the lowest level on this metric in almost 20 years. The above trend growth incented more workers to seek employment, causing the labor force participation rate to increase to 62.9% in October. Additionally, average hourly earnings grew by 0.2% on a month-over-month basis, bringing the yearly increase in worker compensation to 3.1%, the strongest increase in the post-crisis environment. The wage growth figures were broad-based with earnings in goods-producing sectors gaining 2.5%, while the service economy saw a 3.3% improvement in compensation.
While the headline improvements in wages suggest there may be less slack in the labor market than some have argued, it is important to point out that the year-over-year comparisons were positively influenced by last year’s hurricane Irma and Harvey related weakness. The strength in labor markets is likely to keep the Fed on track to hike in December, and potentially push the fed funds target rate into restrictive territory.
The Look Forward
The data calendar is active this week, with updated data expected on the ISM non-manufacturing survey, producer inflation as well as consumer sentiment. There is also an FOMC rate decision on Wednesday that is broadly expected to produce no headlines.
Sources: Bloomberg Finance L.P., (Treasuries) Chatham Financial (Swap Curves), FHLB Boston, Chicago, Dallas, Des Moines for FHLB Advance Rates. Wells Fargo Brokered CD Indications.
Market Implied Policy Path (Overnight Indexed Swap Rates)
Source: Chatham Financial
Fixed Income Snapshot
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