Job creation numbers for August and September were disappointing, contributing to the Federal Reserve’s decision to leave its key interest rates unchanged. It is unsurprising, therefore, that good job creation numbers for October have rekindled expectations that the Fed may indeed raise its interest rates at its final meeting for 2015 next month.
According to US Department of Labor figures, October saw the creation of a further 271000 jobs which far outstripped analysts’ expectations of 185000 new jobs. The situation was also helped by an upwards adjustment to the August and September figure by a combined total of 12000. A strong job creation number supports the idea that the US economy is enjoying robust growth and therefore, it could be time to start the process of normalisation of the interest rate and a tightening of fiscal policy. On the other side of the balance sheet, employment is still higher than it should be; inflation well below target and global demand remains weak.
Average earnings were up by 2.5% year-on-year meaning that the average hourly wage has risen by a whopping 9c to $25.20, but it does mean that people have marginally more to spend since inflation stands at 0.2%. Of course, a rate rise would lead to higher mortgage and loan costs for the public, choking off that additional income.
The news of the good job creation data sent the Dollar higher against other major currencies, partially on speculation of the impending interest rate hike that may or may not happen in December. Another factor mitigating against a rise is the current strength of the Dollar (prior to the fact of any rise) which is making US goods more expensive in importing markets and so less competitive. Rates mark their seventh year on hold in December (if they make it that far) and the last time the Fed pushed interest rates up was back in June 2006.