On the October Jobs Report

The October jobs numbers slam the door on any possibility of one more Fed rate hike. It’s better than the usual “bad news is good news” cliché because the Fed will treat it as bad news, but it isn’t really. 145,000 is a miss, but it is an objectively strong number. It is contradicted by employment contraction in the “household survey,” but when put on a “payroll basis” employment is even stronger than payrolls. And the payrolls number is confirmed overall by all other contemporaneous labor market indicators. Average hourly earnings growth is slowest in 20 months, and this (erroneously, but nevertheless) is the Fed’s key inflation predictor. With downward revisions to the prior two months’ too-good-to-be-true payrolls, this makes true the FOMC’s false statement Wednesday that the labor market has moderated since the beginning of the year. The money-market curve shows the first rate cut in June. We continue to think it will be sooner.