165,000 Jobs Added, Lifting 2-Year Yield to 4.528% and Strengthening Rate Bets
Key Facts
The U.S. economy added 165,000 nonfarm jobs in October, exceeding the 65,000 increase forecast by economists surveyed by Reuters, according to the jobs report released on November 6. The data showed the unemployment rate falling to 4.1% from 4.2% in September, signaling continued labor-market resilience. After the report was released, the yield on 2-year Treasury notes rose 5.1 basis points to 4.528%, according to Reuters. The 10-year yield also rose 4.3 basis points to 4.878%, while the 30-year yield climbed 2.6 basis points to 5.277%. Reuters said yields rose on Friday after the data showed the world's largest economy added far more jobs than expected.
The report also affected monetary-policy pricing: futures raised the probability of a December rate hike to 75%, from 72% before the data were released. Investors are meanwhile awaiting the Federal Open Market Committee meeting scheduled for December 8 and 9. The stronger-than-expected jobs report became a factor bolstering bets on tighter policy after October employment growth clearly exceeded market estimates. In the Treasury market, the spread between 2-year and 10-year notes narrowed to 33.7 basis points on Friday, from 37.1 basis points in the previous session. The narrowing reflects a larger move in short-term yields, which rose faster than long-term yields during the report session.
Job growth extended across several sectors, with professional and business services adding 70,000 jobs in October, health care adding 42,000 and transportation and warehousing adding 25,000, according to the U.S. Bureau of Labor Statistics. Average hourly earnings for private-sector, nonfarm employees increased 14 cents, or 0.4%, to $38.00. On an annual basis, average hourly earnings rose 3.1% in the 12 months through October. The wage increase adds to a report combining strong job growth with higher worker earnings, factors investors track when assessing the path of inflation and interest rates. Figures for the previous two months were revised higher: August's gain was revised to 186,000 jobs from 133,000, and September's to 60,000 from 29,000, lifting the combined total for the two months by 84,000 jobs from the previously published estimates.
In the background, the Federal Reserve on October 28 kept its target interest-rate range at 3.75% to 4%, in a decision approved by a 10-to-2 vote; the two dissenting members favored raising the range by a quarter of a percentage point. The Fed said in its statement that economic activity "is expanding at a solid pace," inflation "remains elevated," while "the unemployment rate has changed little." October's report puts that earlier labor-market reading alongside newer data showing lower unemployment and gains in jobs and wages. Treasury yields had seen sharp moves during the week; the 10-year yield rose to 4.86% on November 6 from 4.84% at Thursday's close, according to The Associated Press, after a sharp drop earlier in the week. The agency reported that the 10-year yield topped 5.30% in October amid concerns about inflation, higher interest rates and government debt.
Attention now turns to the October Consumer Price Index report, scheduled for release on November 10 at 8:30 a.m. Eastern time, according to the Bureau of Labor Statistics. The index rose 3.7% year over year in September, making the next reading the next milestone in tracking prices after the jobs report. The market is also awaiting the November jobs report, which the bureau scheduled for release on December 4 at 8:30 a.m. Eastern time. This comes ahead of the Federal Open Market Committee meeting on December 8 and 9, when policymakers will have the available employment and inflation readings. The focus is on the dated data releases ahead of the meeting, while rate pricing remains sensitive to published economic figures.