Ball State University Economist Mike Hicks says the U.S. Department of Labor’s latest jobs report might cause the Federal Reserve to raise interest rates by year’s end.
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The monthly report said the economy added 211,000 private-sector jobs in November, and September and October increases were revised upward. Also, the rise in wages appears slanted toward management: Average hourly earnings for production and nonsupervisory employees increased at an annualized rate of 1.9 percent in the three months through November, less than the 2.4 percent gain for all employees. And she has cited the labor market’s cumulative progress in recent years, with the unemployment rate down to 5% from 10% in 2009, and employers adding an average of more than 200,000 jobs a month in 2015. Construction companies added 46,000 jobs, the most in two years. The unemployment rate remained unchanged at 5 percent.
Because the economy showed strong hiring in November, Hicks believes it is strongly possible likely the Federal Reserve will raise interest rates from record lows later this month. Iyer notes that Fed Chair Janet Yellen recently said that even 100,000 jobs added per month in 2016 would “cover new entrants to the workforce”.
The Dow surged by about 370 points Friday to close at 17,847.63 in the wake of the November jobs report after dropping more than 250 points on Thursday. Spending on construction projects, including homes, roads and office towers, reached an eight-year high in October. The civilian labor force participation rate was 62.5 percent, and it also changed little in November. Even some of the hawks, who would typically worry more about inflation risks than weak economic growth, are weighing a possibility that they may face a long spell of sub-par growth and low inflation.
“With the markets well prepped for action on December 16, we believe the hurdle for the Fed not to move in December is extremely high”, said Kevin Cummins, senior USA economist at RBS in Stamford, Connecticut. But factories shed 1,000 jobs. The Fed’s first rate hike, expected to be 25 basis points, will start what is expected to be a slow cycle of policy tightening that may see rates remain below normal for years to come.
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Employment numbers are one of the leading factors the Fed is taking into consideration while weighing whether the economy is stable enough to hike rates for the first time since the financial crisis. Still, economists said the soft services sector survey did not signal a slowdown in gross domestic product growth from the third quarter’s 2.1 percent annual rate. Of those marginally attached workers, 594,000 were counted as discouraged workers, those not looking for work because they didn’t think that there were jobs available – the same as a year earlier.
