Economic Views

US payrolls point to a December rate rise, but much rests on presidential election

Signs of rising wages support the case for a US rate rise this year.


Keith Wade

Keith Wade

Chief Economist & Strategist

Jump in wages indicates tighter labour market

Employment continued to rise in the US in October with non-farm payrolls rising by 161,000 while we saw substantial upward revisions to August and September figures.

The unemployment rate dropped to 4.9%, but the headline grabber was a 0.4% jump in monthly wages which took the year-on-year increase to 2.8%. This represents the fastest pace since June 2009 and is a clear sign that the tightening of the labour market is beginning to push earnings higher.

Given the weakness in productivity in the economy, unit wage costs will be rising at a pace which is consistent with the Federal Reserve’s (Fed) 2% inflation target.

Will election derail tightening?

Given other data (GDP, purchasing managers’ indices, and vehicle sales) which point to steady growth, and a number of Fed members already wanting to raise rates, it is hard to see how the central bank can avoid a tightening of policy on 14 December.

There is, of course, the small matter of the presidential election where the opinion polls have narrowed dramatically and which could derail any prospect of tightening.

Market volatility would undoubtedly spike in the event of a Donald Trump win, but we will have to see what next Tuesday brings us.

The views and opinions contained herein are those of Schroders’ investment teams and/or Economics Group, and do not necessarily represent Schroder Investment Management North America Inc.’s house views. These views are subject to change. This information is intended to be for information purposes only and it is not intended as promotional material in any respect.