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October Jobs Report Exceeds Expectations & May Nudge Fed to Raise Rates

Unemployed-ChalkboardOctober’s healthy job gains of 271,000 reported in the Bureau of Labor Statistics’ (BLS) October 2015 Employment Summary released Friday make a December liftoff by the Fed an extremely likely possibility.

The number of jobs added in October beat analysts’ expectations of 180,000 by about 50 percent. With revisions to the weak job gains in August and September, employment growth in those two months was 12,000 more than originally reported, and the average three-month job gain for August through October is 187,000.

The unemployment rate and number of unemployed persons were virtually unchanged from September to October at 5.0 percent and 7.9 million, respectively, but are down by 0.7 percentage points and 1.1 million.

The report follows the announcement earlier this week by Federal Reserve Chairman Janet Yellen before Congress that a short-term rate hike is likely in December if the October and November jobs reports were strong.

“As disappointing as last month’s jobs report was, this one more than makes up for it,” said Curt Long, Chief Economist of the National Associations of Federal Credit Unions (NAFCU). “Job gains surged past analysts’ expectations, while the unemployment rate dropped even as 300,000 workers joined the labor force. Meanwhile, year-over-year wage growth hit its highest mark since mid-2009. Barring catastrophe, everything looks set for the Fed to raise rates in December.”

The better-than-expected October jobs report could drive a demand for household formation in the next year as well as an increase in mortgage rates to higher than 4 percent, according to one economist.

“We should see continuing strong demand for housing in the months ahead if today’s strong jobs report reflects a true return back to a strong growth trend we’ve seen over the last few years,” Realtor.com Chief Economist Jonathan Smoke said. “The healthy strong employment results for the past two years created an uptick in household formation, which has driven increased demand for home purchases and rentals. Today’s job report will influence the long-term bond market, so mortgage rates will increase in response. The average 30-year conforming rate was 3.99 percent yesterday, having increased 9 basis points in one week due to the consensus view of a strong, but not this strong, employment report. The 30-year conforming rate will likely top 4 percent as a result of this news.”

"Barring catastrophe, everything looks set for the Fed to raise rates in December.”

Curt Long, NAFCU Chief Economist

One notable aspect of October’s employment summary is that the U-6 unemployment rate, which is defined as the total number of unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force, fell below double digits in October at 9.8 percent. It has not been under 10 percent since May 2008. It was 11.1 percent in October 2014, which calculates to a year-over-year decline of 1.3 percentage points, according to the BLS.

Average hourly wage gains jumped by nine cents in October up to $25.20 and have increased by 2.5 percent year-over-year.

“The headline unemployment rate edged down for the right reasons, and more importantly, the broader U-6 unemployment rate also ticked down to a nine-handle, the lowest since May 2008,” Fannie Mae SVP and Chief Economist Doug Duncan said. “Another piece of good news is the outsized jump in average hourly earnings, sending the annual gain to the best showing since July 2009. Recent comments from the Fed chair appear to prime the market for a December rate hike, and today’s report serves to fuel market expectations that a hike this year is very likely. We see the jobs report as a positive for housing for several reasons, including the reported biggest gain in construction payrolls since February 2015 and rosier wage prospects. Our expectation of a gradual pace of Fed moves in the coming months does not suggest a dramatic change in mortgage rates in 2016, and the housing market should continue to improve with a stronger overall economy.”

To view the complete October 2015 Employment Summary, click here.

About Author: Seth Welborn

Seth Welborn is a Harding University graduate with a degree in English and a minor in writing. He is a contributing writer for MReport. An East Texas Native, he has studied abroad in Athens, Greece and works part-time as a photographer.
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