On the October Jobs Report

The headline gain of 531,000 net payrolls is inflated by upward revisions of 235,000 to the prior two months, which means they were not the big misses they seemed at the time. The drop in the headline unemployment rate is precisely on track with our expectations for a return to the pre-pandemic level by April 2022. But that likely does not meet the Fed’s “inclusive maximum employment” criterion for lift-off, with the improvement coming predominantly among whites. The 104,000 expansion of the labor force is also on track, implying pre-pandemic levels won’t be reached until 2024. Wage gains moderated from last month’s scorching pace, which should help inflation expectations to continue to relax (whether or not wages even have anything to do with inflation). Market-implied expectations for lift-off in September 2022 have already pushed out from July. They may be well-tuned for the post-pandemic boom we are forecasting, but at the present pace, they need to be pushed out further.