The U.S. labor market surprised with its strength in October. The economy added 165,000 nonfarm payroll jobs, well above the 65,000 predicted by economists surveyed by Reuters. The unemployment rate fell from 4.2% to 4.1%, while job gains for August and September were revised up by a total of 84,000 positions.
Key figures
• 165,000 jobs created in October, versus 65,000 expected.
• Unemployment at 4.1%, versus 4.2% in September.
• Revisions: 84,000 more jobs added for August and September.
• Average hourly wage: +3.1% year over year.
• Implied probability of a December rate hike: about 80% after the release.
A labor market stronger than expected
Job growth was broadly distributed. Professional and business services added 70,000 positions, health care 42,000, transportation and warehousing 25,000 and manufacturing 19,000.
By contrast, construction shed 3,000 jobs and leisure and hospitality 13,000. The average workweek remained steady at 34.4 hours.
Unemployment falls despite a rise in the labor force
The drop in the unemployment rate is all the more notable as 421,000 additional people entered the labor market. The participation rate rose to 61.9%, up from 61.6% in August.
But not everything is favorable: the number of people working part-time for economic reasons rose by 339,000 to 4.84 million, and the median duration of unemployment rose to 11.9 weeks, the highest since November 2021.
The Fed has fewer arguments to ease
The Federal Reserve had kept its policy rate in a range of 3.75% to 4.00% the prior week. After the employment report, markets priced in about an 80% probability of another rate hike at the December meeting, versus about 67% the day before.
The next decisive statistic will be October U.S. inflation. If price growth remains elevated, a solid labor market will give the Fed more latitude to further tighten its monetary policy.
Dollar and Treasury yields rise
The release immediately supported the dollar and U.S. bond yields. The dollar index rose by about 0.7% after the figures, while Treasury yields moved higher.
For international markets, this potentially means a firmer dollar and tighter financial conditions. Countries and companies that fund themselves in dollars may therefore see their borrowing costs stay high for longer.
What impact for gold and emerging markets?
Higher U.S. rates tend to strengthen the appeal of dollar-denominated fixed-income investments and can weigh on non-yielding assets, such as gold. But the effect also depends on inflation, geopolitical risk and movements in the dollar.
For emerging economies, the main challenge is the cost of external financing. Tighter American monetary policy can attract capital to the United States and increase pressure on currencies and interest rates elsewhere.
