The American job market tightened up even further in October. There was a strong expansion in payroll employment, labor force participation increased, and average hourly earnings surged at a 3.1% y/y growth rate, its strongest advance since April 2009.

Non-farm payrolls increased by 250,000 in October, a very impressive performance considering that Hurricane Michael wreaked havoc during that month. Over the past three months, job gains have averaged 218,000 per month also an impressive figure considering that the labor market was giving off signals that it was running out of available workers.  

Employment estimates from the more volatile household survey surged 600,000 in October. Given the 711,000-monthly increase in the size of the labor force and the October increase in the labor force participation rate, the jobless rate held steady at 3.7%, its lowest level since December 1969. The labor force participation rate, which had been dropping because of demographic pressures, rose to 62.9% in October versus 62.7% in September.

Even though the unemployment rate in October was unchanged at 3.7 %, the U6 unemployment measure which includes underemployed, as well as unemployed, slipped lower to 7.4% in October versus 7.5% in September.

Perhaps the most important insights from these latest reports concern wage growth, which has been the missing piece of the economic recovery. As one of the accompanying charts illustrates, average hourly earnings has been trending up, and over the last 12 months increased 3.1% versus 2.8% for the 12 months ending in September. The recent October annual increase in wages was the strongest since 2009.

The Federal Reserve tracks these labor market figures very closely. Since higher wage growth is part of the inflationary process, the latest strong job and wage numbers will keep the Fed on its tightening path. The Fed has already increased its benchmark interest rate three times this year and is on track for a fourth 25 basis point hike in December.