US labour report backs the case for Fed rate hike, but politics obstacle remains - ING

James Knightley, Senior Economist at ING, suggests that the healthy job creation and rising pay back the case for higher interest rates in the US, but political and market turmoil next week would likely scupper it.

Key Quotes

“US non-farm payrolls rose 161, 000 in October, below the consensus 173,000 expectations, but we also saw some fairly chunky upward revisions totalling an extra 44,000 jobs in the past two months. Unemployment held at 4.9%, but there was an acceleration in wage growth. It came in at 2.8%YoY, versus an upwardly revised 2.7% rate in September (consensus expectations were for a 2.6% outturn). There was also good news in the form of a lower underemployment rate to 9.5% - the lowest it has been since April 2008.

It therefore seems as though the tightness in the labour market is starting to generate higher pay. With job to job flows picking up, implying that employers are going to be increasingly concerned about the negative costs associated with worker turnover, we look for wage growth to continue edging higher. The wage story is also good news for consumer spending with average hourly earnings not having risen this fast since mid 2009.

So with the economy creating jobs and workers being paid more, it backs the case for a rate hike from the Federal Reserve in December. However, it isn’t a done deal. Any market turmoil relating to next week’s Presidential election would quickly scupper thoughts of a policy change.”