We have looked hard at the details of the September employment report, but find nothing positive to say. Job growth was weak, average hourly earnings remained low, average weekly hours declined and although the unemployment rate was steady, this was due to by a huge drop in the labour force.
Other labour market indicators have been more upbeat with initial and continuing jobless claims at low levels and the JOLTS survey showing a continued surge in the job opening rate. However, as we stated in our latest labour market monitor, job growth below 160,000 per month will be an obstacle for Fed rate hikes.
Combined with continued anaemic wage inflation and our expectation that the ISM will linger around 50 in coming months we think it will become increasingly difficult for the Fed to hike rates in December this year. We now see Q1 next year as the most likely time for lift-off and expect the Fed to deliver a 25bp rate hike at the January FOMC meeting .
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