October Unemployment Rate Unchanged; Economist Says Fed Will Likely Read Data As 'Modestly Inflationary'

The Bureau of Labor Statistics releases a report each month outlining the employment landscape. After a weather-induced slowdown last month due to Hurricane Michael, numbers are rising again. 

What Happened

The October U.S. employment report demonstrated a strong rebound in hiring, with a 3.1-percent gain in average hourly earnings, said RSM US LLP Chief Economist Joseph Brusuelas. 

Total nonfarm payroll employment rose by 250,000 jobs in October, beating an estimate of 193,000. This growth translates to an average monthly gain of 211,000 over the past 12 months, according to the federal report. 

Private payrolls accounted for 246,000 jobs added in October, compared to estimates of 183,000 and a September figure of 121,000. The unemployment rate remained unchanged at 3.7 percent.

In three months, average hourly earnings increased 3.6 percent, which shows the impact of wage pressures on the economy, Brusuelas said.

“Perhaps more encouraging was the new cyclical high of 79.7 percent for those 25-to-54-year-old prime aged workers. While the increase of 250,000 in total employment and a 3.7 percent unemployment rate are hard to dismiss, the primary narrative with respect to labor market dynamics over the next year will be wage growth and the ability of firms to manage a historically tight labor market amidst a strong U.S. economy.”

Why It’s Important

The October report underscores the wage gains and strength in the economy, Brusuelas said. Sectors such as producing, construction and manufacturing added 67,000, 30,000 and 32,000 jobs, respectively, during the month. The education and health care sectors added more than 40,000 jobs.

" ... The three-month pace of job growth stands at 218,000, which is well above the roughly 80,000 necessary to stabilize the unemployment rate," Brusuelas said. 

What’s Next

The economist commented on how the employment data could be interpreted by the Federal Reserve and impact plans to raise the federal funds rate in December and next year.

“Given the Fed’s use of the Phillips Curve, they are likely going to interpret this data, should it be sustained, as modestly inflationary, thus the risk in 2019 is that the Fed will increase the pace of their rate hikes and hike the policy rate by 100 basis points next year. Market participants will likely need to adjust their expectations going forward.”

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