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Fast Comment USUnemployment hits its lowest rate since 1969

  1. Labour market conditions still tightening; unemployment at its lowest rate since 1969
  2. Moderate wage growth
  3. Fed on course for a rate hike in December
Labour market conditions still tightening; unemployment at its lowest rate since 1969
Total non-farm payroll employment increased by 134,000 in September, somewhat less than the consensus expectation of 185,000. However, including the +87,000 revision for the previous two months, the level of employment was slightly higher than expected. The underlying pace of employment growth, of close to 200,000 per month, is stronger than we would usually expect at this late stage of the economic cycle, and there is nothing to suggest a significant deceleration in US employment growth at the moment. Unemployment edged down to 3.7 percent, from 3.9 percent in August, well below Fed officials’ current 4.5 percent estimate of the long-run natural rate of unemployment. The last time the unemployment rate was lower than it is now was in the 1960s.
Moderate wage growth
Wage increases have been slower than could be expected considering the continuing tightening of the labour market. Although wage growth has been trending upward, the pace has been slow. In September, wage growth expanded by 0.3 percent m-o-m, but a base effect (linked to last year’s hurricanes) dragged the annual rate down to 2.8 percent, slightly softer than the 2.9 percent nine-year record posted for August. However, we expect wages to rise further ahead, driven by the strong labour market.
Fed on course for a rate hike in December
The labour market is tight and there are signs that wage pressure is building. Also, inflation has increased and core PCE inflation is now running at the Fed’s 2 percent target. That should keep pressure on the Fed to continue raising interest rates once a quarter, in our view. All in all, everything points to the next hike taking place in December. We expect the Fed to raise rates twice in 2019.

 



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Anders Bergvall

Anders Bergvall

Senior Economist

Thematic analysis and USA

anbe83@handelsbanken.se

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