CICC has released a research report stating that the baseline scenario remains one more rate hike by the Federal Reserve in December, followed by a shift to a wait-and-see stance.
Given that the risk of conflict between the US and Iran has somewhat declined after the midterm elections, the room for further sharp increases in oil prices is limited, and the future contribution of energy prices to inflation is expected to diminish.
At the same time, recent volatility in capital markets has marginally tightened financial conditions, which partially substitutes for Fed rate hikes, suggesting the central bank need not rush to tighten further.
Overall, this tightening cycle is relatively mild, and the Fed will adopt a gradual approach to rate hikes, maintaining a cautious attitude throughout the process.
The main points from CICC are as follows: US nonfarm payrolls added 165,000 jobs in October, far exceeding market expectations, with the previous two months revised up by a combined 84,000, indicating accelerating expansion.
In terms of structure, job growth has expanded from services to cyclical sectors such as transportation and warehousing and manufacturing; within construction, non-residential expansion and residential contraction confirm the divergence between AI investment and real estate.
The unemployment rate fell back to 4.1%, driven by labor demand expanding faster than supply.
Hourly wage growth picked up marginally, but wage pressure is concentrated in blue-collar industries related to AI infrastructure, and overall upside risks remain low.
The baseline judgment of one more Fed rate hike in December followed by a wait-and-see approach is maintained, with next week's CPI being the key.
US nonfarm payrolls added 165,000 jobs in October, significantly beating the market expectation of 65,000, and the previous two months were also notably revised upward, showing strong momentum in the labor market recovery.
Among these, August job gains were revised up from 133,000 to 186,000, and September from 29,000 to 60,000, for a combined upward revision of 84,000.
After the revisions, nonfarm payrolls averaged a monthly increase of 137,000 over the past three months, well above the 48,000 average over the prior 12 months.
From a structural perspective, labor growth continues to expand from services to broader cyclical sectors.
Professional and business services added 70,000 jobs this month, well above the average of 15,000 per month over the past 12 months; education and health services added 53,000; transportation and warehousing added 25,000; and manufacturing added 19,000.
Job growth is no longer dependent on a few consumer-facing service industries, and the boost to manufacturing employment from AI investment continues.
The main drags came from leisure and hospitality, construction, and information industries.
Leisure and hospitality shed 13,000 jobs in October, which is still a relatively small fluctuation relative to the sector's total employment.
Construction as a whole lost only 3,000 jobs, but with clear internal divergence: non-residential specialty trade contractors and construction combined added about 11,000, while residential specialty trade contractors shed about 15,000.
This is consistent with the pattern of strong demand for capital expenditure such as data centers while residential investment remains suppressed by high interest rates.
The information industry shed a modest 1,000 jobs, indicating that the AI substitution effect is still playing out; however, financial services added 7,000 jobs, suggesting that white-collar employment has not broadly contracted, and the impact of AI on different roles remains to be seen.
The unemployment rate fell back to 4.1%, with supply constraints helping to stabilize the jobless rate.
The labor force participation rate rose from 61.8% to 61.9% in October, with a rebound in participation among those aged 55 and over, and a marginal increase in the foreign-born labor force.
Overall, the labor force increased by 421,000 while employment rose by 463,000, pushing the unemployment rate down from 4.2% to 4.1%.
This means the decline in the unemployment rate was not driven by workers exiting the labor market, but rather by employment demand growth outpacing labor supply expansion.
Considering that population aging and immigration policies limit labor supply growth, the unemployment rate will remain low as long as demand stays resilient.
Wage growth picked up marginally, but under the AI substitution effect, wage inflation pressure remains broadly controllable.
Average hourly earnings rose 0.4% month-over-month in October, with the annualized pace over the past three months rising to 3.9%.
Structurally, AI investment is driving demand for non-residential construction and related manufacturing workers, with wages rising relatively quickly for some skilled trades.
The Dallas Fed previously noted that data center construction is pushing up labor costs and drawing workers from other industries.
However, current wage pressure remains concentrated in a few sectors with tight supply-demand conditions, such as blue-collar industries related to AI infrastructure, while AI is substituting for some white-collar roles, suppressing wage growth.
Therefore, while labor demand continues to expand, the likelihood of a "wage-inflation" spiral forming is low.
The strong nonfarm payrolls data has kept the option of a December rate hike on the table for the Fed, with next week's CPI being the key.
This report further confirms that the labor market is at full employment, reducing the Fed's concerns about downside risks to employment and growth, with the policy focus remaining on inflation.
Next week's CPI data will provide the Fed with more information on inflation, and this will also determine officials' stance on rate hikes in December and beyond.
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