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Three Simple Messages From the U.S. Employment Data

Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco. His books include “The Only Game in Town: Central Banks, Instability and Avoiding the Next Collapse.”
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The U.S. jobs report for October released by the Labor Department on Friday contained three simple messages.

For the economy: The combination of continued solid employment growth (161,000 new jobs in October and upward revisions of 44,000 for the previous two monthly estimates) and a faster increase in wage growth (now 2.8 percent, annualized) is good news for an economy powered by consumption.

QuickTake Monthly U.S. Jobs report

Over time, such results would encourage companies to invest more. But the slight decline in the labor participation rate (by 0.1 percentage point, to 62.8 percent -- still stuck around multidecade lows) points to the importance of a more comprehensive policy response beyond the protracted and excessive dependence on central banks. Without such action from other policy makers, the economy will face stronger structural headwinds to sustainable inclusive growth and long-term prosperity.

For the Federal Reserve: The vast majority of the content of this jobs report favors an interest rate hike when the central bank's policy-making committee meets in December. When it comes to the domestic situation, the only big event that could derail that action now would be a very disorderly market reaction to the Nov. 8 presidential and congressional elections.

For markets: It is reassuring that the U.S. recovery, though it is far from explosive, remains on track. Less reassuring is the higher likelihood of an interest-rate hike as central banks everywhere -- for questions of both willingness and ability -- are becoming less effective in repressing financial volatility and boosting asset prices. The fate of markets depends more than ever on what, to date, has been an elusive  transition away from excessive reliance on central banks to a more comprehensive policy response.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Mohamed A. El-Erian at melerian@bloomberg.net

To contact the editor responsible for this story:
Max Berley at mberley@bloomberg.net