(Fixes typo in headline)
NEW YORK (Reuters) - U.S. employers hired more workers than expected in October, but a rise in the unemployment rate to 3.7% suggested some loosening in labor market conditions, which would allow the Federal Reserve to shift towards smaller interest rates increases starting in December.
Nonfarm payrolls increased 261,000 last month, the Labor Department reported on Friday, while September was revised up to 315,000 jobs added, from 263,000 previously reported. Economists polled by Reuters had forecast 200,000 jobs. The unemployment rate increased to 3.7% from September's 3.5% and average hourly earnings increased 0.4% after rising 0.3% in September.
MARKET REACTION:
STOCKS: S&P e-mini futures extended a gain and were last up 1.3%, pointing to a strong open on Wall street
BONDS: The yield on 10-year Treasury note was unchanged from just before the data, last up 3.4 basis points at 4.158%; The two-year U.S. Treasury yield ticked a bit lower but was still up 2 basis points from Thursday at 4.721%
FOREX: The Euro extended a gain against the dollar to up 1.3% and dollar index extended a loss
COMMENTS:
MICHAEL ARONE, CHIEF INVESTMENT STRATEGIST, STATE STREET GLOBAL ADVISORS, BOSTON
“The labor market continues to be a bright spot in the U.S. economy and that kicks investors’ hopes of a Fed pivot further down the road. This continues to suggest that the labor market remains tight and that the Fed will continue fighting to defeat inflation and keep raising rates pretty aggressively given these types of numbers."
“If I look at this in combination, and I look at the participation rate, which didn’t really change, this continues to suggest to me there is a scarcity of workers, which means wages will remain elevated. So, they may be growing at a slower overall rate, in terms of where they were, but at 4.7% year over year it continues to suggest that wages will flow through into inflation and that the labor market is pretty tight. The supply of workers is constrained and that is going to keep wages elevated for a while longer."
“This was a stronger than expected report. The availability of workers remains tight, wages are growing, this continues to suggest that the process the Fed is undertaking to defeat inflation is still going to take much longer than markets are expecting.”
MICHAEL PEARCE, SENIOR US ECONOMIST, CAPITAL ECONOMICS, NEW YORK (emailed)
"The October employment report had something for everyone, with payrolls pointing to continued strong employment gains while the household survey showed a sharp fall in employment and a rise in unemployment. Either way, what’s clear is that the labour market has continued to hold up better than expected and with wage growth still too hot for the Fed, there is little to suggest that officials will drop their hawkish bias any time soon."
ROSS MAYFIELD, INVESTMENT STRATEGY ANALYST, BAIRD, LOUISVILLE, KENTUCKY
"It's just another data point that proves the labor market is too strong to accommodate what the Fed wants. I'd expect a pretty muted or bad market reaction. You can see short-term yields heading higher."
"The unemployment rate ticked up very slightly, some of the participation data was a little bit softer but the broad jobs added and wage growth, that's what drives the inflation we're seeing. To me, right on the heels of Fed meeting on Wednesday, it's kind of a bearish report for equity markets."
"I think 50 bps is still the base case. We'll get plenty of data between now and then. There's still time for the data to shift the narrative. While Fed Chair Powell was pretty hawkish at the press conference, there were clear signs that the bank was ready to slow things down."
"This certainly doesn't indicate that the Fed has any reason to pause but I think a deceleration is probably the base case."
JASON PRIDE, CHIEF INVESTMENT OFFICER, PRIVATE WEALTH, GLENMEDE, PHILADELPHIA
"That’s (data) kind of a mixed picture. I would argue that the Fed may be looking for a more restrained picture to think that it can begin to really pare back on its rate hike campaign. I would argue that they are. They're looking for a situation where you don't just have unemployment rate coming up a little bit. You may have it coming up a little bit more."
"They may also be looking for lighter jobless claims and a little bit less in the way of average hourly earnings growth. This one’s a step in the right direction because it's, you know, if you actually look at it, it's the third month in a row of more modest hourly earnings gains. So it’s a step in the right direction, but it's not really exactly where they want it to be."
"There's a little bit of a negative (market) reaction, but it's very modest in nature and market was up half percent before the reading came out. So a little bit of a negative reading on it, but not dramatic.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“(There are) no major surprises here, and the good news is year-over-year wage increases have come down, which is a sign of lower wage pressures ahead despite the tight market.”
“There are signs that wage inflation has peaked, and as we move closer to recession that number should come down.”
“More and more companies are beginning to announce layoffs. That’s a prelude of what we’re going to see as we go forward. This tightness in the labor market is probably reaching its peak. The numbers will change going forward and they will have met the objective of the Federal Reserve, because Powell stressed wage pressures and the tight labor market.”
“This is an indication that with recession looming things are going to get ugly going forward. In a recession, wages don’t rise - they stagnate. This could be the last hurrah of hourly wages moving to the upside.”
“Were looking at half a percentage point (interest rate hike) in December. A recession is unavoidable. But a severe recession can be avoided.”
(This story has been refiled to fix a spelling error in the headline.)