Employment Results Startle Analysts

This past Friday's employment report from the Labor Department has been the subject of much discussion among pundits. Not because non-farm payrolls rose a less-than-expected 92,000 in October, but because the prior two months were revised upward by a total of 139,000 jobs. September's figure alone was revised up by 97,000. (Remember how surprisingly small September's gain was initially?)

The household survey reported an impressive job growth number for October of 437,000. This was a huge increase over September's household survey number of 271,000 new jobs. And, the headline unemployment rate fell to just 4.4%.

So what should we make of these numbers?

• First off, it's tough to be overly pessimistic about the economy near term given these results. We suspect that holiday spending will be fine despite the problems with housing.
• Second, strong employment gains often hurt productivity over the short run and may account for some of the recent disappointment on that front.
• Third, there is a growing shortage of labor so wage inflation will be harder to keep in check, raising doubts about any Fed rate cut in the near future.