The 271,000 surge in non-farm payrolls last month puts to rest fears that the earlier slowdown could be the start of a worrying downturn. The decline in the unemployment to 5.0% in October leaves it at the lower bound of the Fed's estimated range for the equilibrium unemployment rate. Further, the share of involuntary part-time workers has fallen to a seven-year low. With the labour market very close to full employment, there are finally signs of a pick-up in wage growth. We believe the big story next year will be an unexpectedly strong acceleration in wage growth and core inflation, which will force the Fed to normalise policy much faster than markets currently anticipate.
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