Strong Unemployment, Payrolls and Wages Creates Perfect Storm for Markets and the Federal Reserve

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Friday’s unemployment and payrolls report from the U.S. Department of Labor was strong, perhaps strong enough that it still offers plenty of cover for Jerome Powell and his fellow Fed-heads to keep raising interest rates. The October payrolls report was also the last major jobs number ahead of Tuesday’s mid-term elections. Ahead of the report, Wednesday’s ADP monthly payrolls report came in stronger than expected at 227,000 new payrolls added in October. CNBC had published a consensus a of just 189,000.

Friday’s report showed that the official unemployment rate was static at only 3.7%. This met the published consensus estimates from most sources. There also appears to have been very little direct impact from hurricane related weakness in October and the follow-on storm impacts from September.

Nonfarm payrolls rose by a sharp 250,000 in October in Friday’s BLS report. Dow Jones was calling for a non-farm payrolls gain of 188,000 and IBD’s Econoday consensus estimate was 190,000 for non-farm payrolls.

What stood out in the payrolls gains was that only 4,000 of these were government jobs. Some 246,000 were from the private sector.

September’s nonfarm payroll gains were revised to 118,000 versus the preliminary report of 134,000 — while August was revised to 286,000 from the last estimate of 270,000.

The expected gain in average hourly earnings is expected to be 0.2%, versus 0.3% in September. That is exactly what came in, a 0.2% gain to $27.30 per hour. The 12-month gain in average hourly wages rose to 3.1% in October versus 2.8% in September. This is the biggest wage jump in nearly a decade.

The stock market was probably hoping for a number of 150,000 or less, as futures have backed off of their pre-open highs. That said, Dow futures were up over 200 points after this release and S&P futures were up almost 18 points. A smaller gain would have still been positive for the economy, but it would have sent the message to the markets that there was less overheating that will keep Mr. Powell’s rate hike ambitions potentially muted.

Another factor is the labor participation rate, which was 62.9% in October versus 62.7% in September. IBD’s Econoday consensus was 62.8% for October.

Regardless of how you might look at October’s Employment Situation report, the numbers were strong. Strong enough that the Fed won’t have to apologize for any views that it can keep raising interest rates for the time being.