The better-than-expected October jobs report could drive a demand for household formation in the next year as well as increase mortgage rates to higher than 4 percent, according to one economist.
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“We have to conclude a rate hike is coming December 16 unless remaining data releases undermine the message from today’ s employment report”, said Chris Low, chief economist at FTN Financial.
But that didn’t happen in the ’90s and it hasn’t happened recently, either.
Whether those numbers will be enough to get the Federal Reserve Board to raise the all-important benchmark interest rate should prompt at least two beers worth of debate if the prognosticating economists go out for happy hour after work. Fed fund futures, which are securities that bet on which way the Fed will move interest rates, now show a 74 percent chance of the central bank raising rates in December, up from 60 percent on Wednesday. Wages are up, as average hourly earnings rose by 9 cents in October and have enjoyed their largest over-the-year increase (2.5 percent) in more than six years.
Wage growth has been stubbornly slow for most of the recovery, and past periods of acceleration have quickly petered out. The unemployment rate is down by half from its worst point – 10.1 percent in October 2009 – when US employers were laying off hundreds of thousands of workers every month.
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Payrolls data for August and September were revised to show 12,000 more jobs created than previously reported. The unemployment rate inched downward to 5.0 percent and has not been lower since February of 2008.
Thomas Simons of Jefferies wrote to clients of the Fed, “Barring a complete disaster in November [payrolls], they are on track” for December liftoff.
Fed officials said last month that they would consider a rate increase at their next gathering, and Fed chair Janet Yellen this week echoed the view by saying December was a “live possibility”.
In the wake of sluggish job gains the prior two months, October’s advance allays concerns that an abrupt hiring slowdown would hinder the expansion’s progress as economies overseas strive to gain traction. “We are doing about as good as we could ever do”, Bullard said in St. Louis. The economy grew at just a 1.5 percent annual rate in the July-September quarter. The civilian labor force participation rate held steady at 62.4 percent.
What makes Friday’s report significant, then, isn’t that it suggests the job market has found a new gear.
An excess of slack in the labor force has maintained a surplus of qualified workers, many of whom are working part-time or temporary jobs, which has allowed employers to dip into that pool to fill positions without having to significantly raise wages.
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The latest employment report offers concrete evidence the USA remains on a solid growth path despite turmoil in the global economy and tougher times for a few domestic industries such as manufacturing and energy. Now, it’d normally be doing that already with unemployment in the 5 percent range, but seven years after the financial crisis, there still isn’t a lot that’s normal about the economy.
