The US non-farm payrolls report for October indicated a noticeable decrease in labor demand, primarily due to strike actions by autoworkers. However, this drop couldn’t explain the significant downward revision of over 100,000 jobs in previous months, the rise in the unemployment rate, the cooling of average earnings growth, and the decline in the labor force participation rate.
These labor market shifts are seen as a result of the Federal Reserve’s interest rate hikes, leading to negative average earnings growth for the past three months in real terms on a month-on-month basis. As a response to this, there was an anticipated sell-off in the US dollar, driven by a sharp reduction in US bond yields. It’s important to consider this weakening US dollar in the context of the UK and Eurozone economies, which are also facing challenges.
Furthermore, it’s unlikely that the coming week will bring any indications of official interest rate increases beyond what financial markets have already factored in. Expectations for the Federal Reserve, European Central Bank, and Bank of England speakers, including Chair Jerome Powell, don’t foresee a significant deviation from current market expectations.
Despite the recent labor market cooling, the US economy remains the strongest among major economies. It is expected that the US Federal Reserve will be cautious about cutting interest rates. A clearer understanding of whether the US might adjust the timing of its first interest rate cut relative to the UK and Eurozone authorities could emerge after the release of October’s Consumer Price Index (CPI) and retail sales figures next week.
In summary, the October non-farm payrolls report in the United States revealed a significant decline in labor demand, possibly influenced by autoworker strikes. However, it was not enough to account for the substantial downward revisions to previous months’ job growth, an uptick in the unemployment rate, and other concerning labor market indicators. The weakening US dollar, triggered by reduced bond yields and the effects of Federal Reserve interest rate hikes, was not unexpected. Despite this, the US economy remains relatively robust compared to other major economies, and it is unlikely that the Federal Reserve will rush to cut interest rates in response to recent labor market cooling. The coming week’s economic data may provide more insight into whether the US will make any adjustments to its interest rate policy relative to the UK and Eurozone.