• US non-farm payrolls were slightly lower than expected rising 80k versus consensus expectations of 95k. However, net revisions of 102k mean the report overall was stronger than expected
  
• A decline in unemployment to 9.0% driven by more jobs also added to the positive surprise
  
• US jobs growth is cruising at an average speed of over 100k at the moment, which is a bit stronger than we had expected. This gives more resilience to the US economy and more support to the case for 2.5-3.0% growth in Q4.
  

Details

US non-farm payrolls were slightly lower than expected rising 80k versus expectations of 95k. However, net revisions in previous months were 102k, so overall the report shows a net positive surprise of around 87k. The average jobs gain was 114k over the past three months, which is better than previously expected – we had expected an average gain of 75-100k in these months.

The unemployment rate fell from 9.1% to 9.0% – also better than expected, as consensus expected an unchanged rate of 9.1%. Also, the decline happened despite a rise in the labour force of 181k, as employment in the household survey rose 277k. This comes after strong numbers in August and September as well, of 398k and 331k respectively.

By sector the gain was seen mainly in the private service sector gaining 114k driven by gains in trade and transport (35k), business service (32k) and education (28K). Manufacturing added 5k, whereas construction shed 20k. The government shed 24k, again being a drain. Also, primarily states and regions were again behind the loss, as the federal government lost only 2k.

Average hourly earnings rose 0.2% in line with expectations but September earnings were revised higher from 0.2% to 0.3%. The annual increase in earnings is quite subdued at 1.8% meaning that real wages have declined around 2% over the past year, as annual inflation has been close to 4% in recent months.

Average weekly hours were unchanged at 34.3 – as expected.

The income proxy was unchanged at 3.7% 3M annualised in October. Income growth is still a bit on the soft side due to low earnings growth and only moderate job gains. This suggests consumption growth is likely to stay at subdued levels.

Assessment and outlook

The labour market is doing slightly better than expected a couple of months ago and we now look for job gains to stay around 100-120k in coming months rather than 75-100k. However, this is far from strong jobs growth and we see consumption growth cruising around 2.0-2.5% in 2012 – quite a bit below the average before the financial crisis of close to 3%.

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