Nonfarm Payrolls Nudge FOMC Towards Rate Hike

Market Trends - 09/11/2015

The surprising results of October’s nonfarm payrolls report in the United States has cast light on an economy rising from its ashes like a phoenix into an eventful fourth quarter. Final figures showed 271,000 jobs added to economy alongside a shrinking unemployment statistic at 5.00%, head and shoulders above median expectations for the former of 180,000. The same report from the last two months was met with poor results that left much room for doubt on any rate hike in 2015. Credit for the numbers goes foremost to the professional and business services sector at 78,000, followed by healthcare, retail and food and drink services, each of which posted over 40,000 jobs added to their individual sectors. Construction added 31,000 jobs as average hourly earnings growth grew 0.40%, or 9 cents per hour more than the previous month. The massive 134,000 difference in jobs added between September and October is the largest gain since December of 2014, and the annual growth of average hourly wages of 2.50% is the most in 6 years.

Despite a falling labour market participation rate, the FOMC has more than enough evidence to raise interest rates in December, provided that trends maintain their momentum. The news is certainly good for the US dollar, which posted 3-month highs against several peer currencies, though equities from many of these economies view the news as negative. It is apparent that both analysts and markets around the world expect the latest numbers to spur liftoff for an interest rate hike, due to statements from Fed Chairwoman Janet Yellen confirming that data alone will drive policy changes. Fed futures rates have currently priced in a 70% chance of rate hikes during the December 15th meeting, as the horizon holds a likelihood of further dollar rallies going into the announcement.


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