The U.S. October jobs report as a whole was in line with expectations and suggests a Fed hike next month is still the most likely scenario.
The U.S. created 161k jobs, which was a little below expectations. The household survey fell 43k after a 354k increase in September. That was the only disappointing part of the report. The September jobs gain was revised up by 35k to 191k. The unemployment rate ticked down to 4.9%. Underemeployment fell to 9.5% from 9.7%, a new cyclical low.
Hourly earnings rose 0.4% to 2.8% year-over-year. The September series was revised higher to 2.7%. Hourly earnings are rising at their fastest pace since 2009. It will strengthen ideas that the labor market is getting tighter and pushing up wages. Higher wages are understood to drive core inflation. Core inflation is what the Fed targets.
The U.S. also reported a smaller-than-expected trade deficit for September. The $36.4 bln deficit compares with $40.5 bln shortfall the previous month. It is the smallest since February 2015. Exports were the strongest since July 2015 and imports were fell by the most in six months. In real terms, which is what feeds into GDP calculations narrowed to $55 bln from $57.4 bln. It will encourage a slight upward revision to GDP. Recall that net exports have contributed positively to U.S. growth for in each of the first three quarters this year.
Canada's data was not nearly as good and the U.S. dollar has been bid to new seven-month highs near CAD1.3450. Canada's merchandise trade deficit was more than twice what economists expected at C$4.08 bln and although Canada created 43.9k jobs, it lost 23.1 k full-time positions.
Canada's export volumes fell 0.8%, while imports volumes rose 2.3%. This generated a record trade deficit. It was flattered by a large one-off import from South Korea for an offshore oil project. Nevertheless, the 0.2% decline in non-oil exports and widening deficit (C$8.2 bln from C$5.9 bln) suggests that Canada is still struggling.
The market has taken the data in stride. The U.S. dollar continues to consolidate this week's losses. U.S. yields are little changed. The December Fed funds are in the middle of its narrow three-week range. Stocks still look heavy.