US Jobs Report Preview: Will October Payrolls Lock In a December Fed Rate Hike?

The October US jobs report will be released on Friday, with investors looking for confirmation that the labour market remains strong enough to withstand another Federal Reserve rate increase. Economists expect hiring to recover modestly from September’s weak result, while steady unemployment and stronger wage growth could reinforce expectations that the Fed will raise rates by 25 basis points in December.

Key Takeaways

• The US jobs report will be released on November 6 at 8:30 a.m. ET.
• Nonfarm payrolls are expected to increase by approximately 59,000 to 65,000.
• The unemployment rate is forecast to remain unchanged at 4.2%.
• Average hourly earnings are expected to rise 0.3% month over month and 2.9% annually.
• Markets currently price in an approximately 82% probability of a December rate hike.
• Payroll growth above 100,000 could push Treasury yields and the US dollar higher.

When Will the October US Jobs Report Be Released?

The Bureau of Labor Statistics will publish the October Employment Situation report on Friday, November 6, at 8:30 a.m. ET.

The report will include nonfarm payrolls, private-sector employment, the unemployment rate, labour-force participation and average hourly earnings. It will also revise the previously published August and September payroll figures.

The release is scheduled for 5:30 p.m. UAE time and 9:30 p.m. in China. It will be the final full monthly employment report before the Federal Reserve’s December 9 policy decision.

How Many Jobs Is the US Economy Expected to Add?

Economists surveyed by Reuters expect nonfarm payrolls to increase by approximately 65,000 in October. A separate Dow Jones survey points to a slightly lower gain of around 59,000.

Either result would represent an improvement from September, when the economy added only 29,000 jobs. The unemployment rate is expected to remain unchanged at 4.2%.

Private-sector payrolls are forecast to increase by approximately 64,000 after rising by 46,000 in September. Government hiring and employment changes in manufacturing, construction, healthcare and leisure services will determine the final headline figure.

The labour market has entered a low-hiring, low-layoff phase. Payroll growth has slowed substantially, but weekly unemployment claims remain historically low, indicating that businesses are reluctant to dismiss existing workers even as they reduce new recruitment.

ADP Employment Beat Forecasts

Wednesday’s ADP report provided a moderately positive signal ahead of the official jobs data.

Private-sector employment increased by 86,000 in October, exceeding the Reuters consensus estimate of approximately 69,000. September’s gain was revised down from 90,000 to 86,000.

ADP also reported that base pay increased 3.2% year over year, while gross pay rose 4.7%. Employers of different sizes added workers, suggesting that hiring was not concentrated exclusively among large companies.

However, ADP and official nonfarm payrolls use different methodologies and can produce substantially different results. The stronger ADP figure therefore improves the probability of a solid payroll report without guaranteeing one.

ISM Services Shows Persistent Price Pressure

The ISM services index presented a more mixed picture.

The headline index declined from 54.9 in September to 54.5 in October, slightly below the 54.8 consensus forecast. Any reading above 50 indicates expansion, meaning the largest part of the US economy continued to grow.

New orders declined to 55.9, while the employment component remained in expansion territory. The prices-paid index eased from 74 to 73 but remained above 70 for the seventh time in eight months.

Persistent service-sector cost pressure remains important for the Fed because wages represent a significant share of expenses for service businesses. A strong wage figure in Friday’s report could reinforce concerns that inflation will remain above target.

Wage Growth Could Matter More Than Payrolls

Average hourly earnings are expected to increase 0.3% month over month, accelerating from September’s 0.1% rise. Annual wage growth is forecast to ease from 3% to approximately 2.9%.

Wages have increased more slowly than consumer prices for six consecutive months. September’s 3% annual pay growth was below the 3.7% inflation rate, meaning workers experienced another decline in real purchasing power.

For the Fed, the monthly wage figure may be more important than a modest payroll surprise. Earnings growth of 0.4% or higher could signal renewed labour-cost pressure, while a result of 0.2% or lower would indicate that wage inflation is continuing to cool.

Payroll revisions will also require attention. The September report revised July employment from a gain of 21,000 to a loss of 10,000 and reduced August’s increase from 162,000 to 133,000.

December Fed Rate-Hike Odds Rise Above 80%

Federal funds futures currently indicate an approximately 82.2% probability that the Fed will raise its target range by 25 basis points to 4%–4.25% on December 9.

That probability increased from 77.4% following the stronger ADP report. Markets assign only about an 18% chance to another hold at 3.75%–4%.

The Fed held rates at its October meeting, although two officials dissented in favour of an immediate increase. Persistent inflation, resilient economic activity and stable employment continue to support the case for additional tightening.

The recent collapse in oil prices could reduce headline inflation, but policymakers will need more evidence that underlying service and wage pressures are cooling.

How Could Markets React to the Jobs Report?

A strong report would make a December hike increasingly difficult for the Fed to avoid.

Hotter scenario: Payrolls above 100,000, unemployment at 4.1% and monthly wage growth of at least 0.4% could push the probability of a December hike toward 90%. Treasury yields and the dollar may rise, while gold, Bitcoin and technology stocks could face pressure.

In-line scenario: Payroll growth between 50,000 and 75,000, unemployment at 4.2% and wages up 0.3% would likely preserve current rate expectations.

Weaker scenario: Payrolls below 25,000, unemployment rising to 4.3% or wage growth of 0.2% or less could reduce December hike bets and pull Treasury yields lower.

Unless the report shows an outright employment decline or a meaningful increase in unemployment, the Fed is likely to remain focused on persistent inflation. An in-line result may therefore be sufficient to keep a December rate hike as the market’s base case.

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