Average hourly earnings rose 0.4 percent in October to 38 dollars, taking annual wage growth to 3.1 percent, in a number that will shape the Federal Reserve decision as much as the headline jobs figure. Employers added 165,000 jobs in October, more than two and a half times the 65,000 economists had expected, and the unemployment rate dipped to 4.1 percent, but it is the wage number that the Fed watches most closely, because pay growth feeds directly into inflation, and inflation, at 3.7 percent over the year to September, is still well above the 2 percent target.
Why it matters
The wage growth is faster than the consensus expected, and it is faster than last month reading. Forecasters had expected annual wage growth of 2.9 percent, which would have been the first annual reading below 3 percent since May 2021, and the actual figure of 3.1 percent was above both last month reading and this month consensus. Average hourly earnings rose 14 cents on the month, and the increase was broad, not concentrated in a single sector. For workers, it is good news: pay is rising faster than expected, and it is rising in a labour market that added 165,000 jobs in a single month.
For the Fed, the wage number is a complication. The central bank held its benchmark rate at 3.75 to 4.00 percent at its October 28 meeting, on a 10 to 2 vote, with two dissents actually wanting to hike further, and the case for a December hike rested on inflation that is still running hot. Strong wage growth strengthens that case, because it suggests that inflationary pressure is not fading as quickly as hoped, and traders raised the odds of a December rate increase to about 78 percent after the report. The Fed next decision comes on December 8 and 9, and the wage data will be part of the argument.
What happens next
The next piece of evidence arrives on Tuesday, November 10, when the October consumer price report is released at 8:30 a.m. Eastern. It is the last inflation reading before the Fed December meeting, since the November report arrives on December 10, after the decision, and it will show whether the inflation that motivated the hike case is still running hot. If prices cool, the wage growth will look like a lagging indicator, and the Fed may wait. If they stay hot, the market will have to reckon with a central bank that may hike into a falling market, which is a combination that investors have not faced in this cycle.
What happens next will be decided by that inflation report, and by the market reaction to it. A payroll figure close to the 65,000 forecast could have steadied nerves after Thursday selloff, but the actual figure of 165,000 did the opposite: it revived the hike bets, pushed Treasury yields higher, and lifted the dollar. For workers, the report is simpler good news: more jobs, rising pay, and a labour market that is cooling without breaking. For the Fed, it is a reminder that the economy keeps refusing to follow the script, and that the next decision will be harder than the last.
