Prior Week Summary
In the final jobs report prior to the U.S. Presidential election, the Labor Department reported that employers added 161,000 jobs during the month of October, bringing the headline unemployment figure back below 5%, owing to declines in the labor force participation rate. The revision to September report also added an additional 35,000 jobs, revising the prior release to a total of 191,000 workers. The highlight of the report was the strong 2.8% year-over-year increase in average hourly earnings. The 0.4% increase during the October reporting period was strong enough to bring the yearly change to the highest level since the summer of 2009.
The broader measure of unemployment, the U-6 underemployment rate, fell 0.2% in October to 9.5%, the lowest rate on that metric since 2008 when the chart was moving rapidly in the opposite direction. The underemployment rate includes workers who are available for full-time work but have had to settle for a part-time job. The strength of the report was reportedly held back due to the dislocations caused by Hurricane Mathew, which impacted nearly 238,000 workers who were not productive because of the weather, according to the Labor Department.
As we go to print this morning, barring an event that pricing models haven’t properly discounted (like a Brexit style polling error) the Fed appears to have the market’s blessing for a rate hike in December, with options pricing indicating an 82% probability for a 25 basis point hike prior to year end.
The Look Forward
Macroeconomic fundamentals will likely continue to take a back seat early this week, until the results of the general election are in the books and markets have one less known, unknown to price in.