The stock market may focus more on getting through the tech sector adjustment than the key macroeconomic data to be released this week. Nevertheless, the data could influence Fed decisions on monetary policy at the December 8-9 FOMC Meeting. If consensus-like estimates print, they would keep open the door for a rate hike by confirming a steady labor market. However, lower-than-consensus wage inflation would have dovish implications for the Fed.
Consensus looks for a 65k m/m increase in October Nonfarm Payrolls and a steady 4.2% Unemployment Rate. The expected jobs gain exceeds the 51k prior 3-month average, so it likely would be viewed as strong by Fed officials. Furthermore, the risk is for the Unemployment Rate to dip to 4.1%, as it rounded up from 4.175% in September. It is close to rounding down to 4.1% in October.
The most important part of the Employment Report could be Average Hourly Earnings (AHE), as it would provide evidence whether price shocks from oil, tariffs and AI-related shortages are influencing wage inflation. Consensus expects a return to the earlier trend of 0.3% m/m after they slowed to 0.1% in September and 0.2% on average in Q326. A return to 0.3% might not indicate a spillover from the price shocks, but it would underscore the stickiness of inflation -- which Fed Chair Warsh does not like and thus keeps open the door for a rate hike. In contrast, a below-consensus print would provide more evidence that wage inflation is slowing, and should encourage Fed officials to think they are succeeding in preventing the price shocks from being embedded in the wage-price nexus -- which Warsh at his news conference said is the Fed's goal regarding the price shocks. A 0.2% or lower AHE also would likely bolster the Doves' view that inflation will slow on a sustained basis once the impact of the price shocks end. The slowdown in the Q326 Employment Cost Index to 0.8% q/q from 0.9% in the prior two quarters runs in that direction, as well. It was released last week, so is new information to be digested at the December FOMC Meeting.
Consensus expects both the October Mfg and Non-Mfg ISM Index to be little changed from their September levels, which would signal continuing sturdy economic growth. The Mfg ISM is seen edging up to 54.7 from 54.5. It would be just short of the 54.9 Q326 average. The Non-Mfg ISM is seen dipping to 54.8 from 54.9 in September. It would equal the Q326 average.
The Atlanta Fed model's first estimate of Q426 Real GDP Growth agrees with sturdy economic growth persisting into the last quarter of the year. The model estimates 3.2% growth in Q426, after the actual 3.4% in Q326. Real GDP Growth for 2026 (Q4/Q4) would be 2.8%, which would exceed the 2.2-2.4% Fed Central Tendency Forecast made at the September FOMC Meeting. It would not stand in the way of a Fed decision to tighten again. However, it would not necessarily trigger a rate hike. Strong GDP Growth could reflect productivity gains. The Fed would likely tolerate it as long as the Unemployment Rate does not move down significantly.
