With the release Friday of a solid November jobs report underscoring improvement in the US labor market, the stage appears set for the Federal Reserve Board to raise interest rates this month. October non-farm payrolls were increased to 298,00, up from 271,000, a number that far exceeded expectations last month and sparked a bond market sell-off in early November. Fed Chair Janet Yellen’s diagnosis of an economy that has “recovered substantially” since the recession was only bolstered by the data, which showed the USA unemployment rate is a healthy 5 percent.
Advertisement
Wall Street, which in the past has sold off after strong job data and the prospect of higher interest rates, greeted the report with enthusiasm, perhaps because it removes any remaining uncertainty about the Fed’s plans.
The strong report alleviates some concerns that the USA economy was cooling just when the the Fed was about to hike rates.
This was a robust showing, which likely has guaranteed that Federal Reserve policy makers will increase their interest rates for only the first time for close to one decade, when they meet on December 15 and 16.
In her testimony before Congress Thursday, Yellen said the economy needs to add roughly 200,000 jobs a month to keep the labor participation rate steady and draw back workers who have dropped out of the workforce.
The Fed has left its target for the federal funds rate, the interest that banks charge on overnight loans, near zero since December 2008.
With China and other emerging economies decelerating, the US – the epicenter of the financial shock wave that hit the world – has become the only real driver of the global economy. US stocks ended higher.
Yet the continued sluggishness of wage gains, and the high numbers of part-time workers remain signs of persistent slack in the jobs market. Those include a strong dollar, which has made exports pricier overseas and squeezed USA manufacturers, and sinking oil prices, which have led drilling companies to slash orders for steel pipes and other equipment. Anecdotal evidence, as well as data on labour-related costs, suggest that tightening job market conditions are starting to put upward pressure on wages.
Wage growth eased a bit last month, with average hourly earnings for all employees on private non-farm payrolls rising by 4 cents to $25.25, following a 9-cent gain in October.
Steady job gains this year and low mortgage rates have also boosted home sales, though sales have leveled off in recent months. They are also in line with the growth in the labor force, explaining the fact that real unemployment remains at near-record lows.
The report classified 1.7 million people as being “marginally attached” to the labor force, or individuals who were “not in the labor force, wanted and were available for work, and had looked for a job sometime in the prior 12 months”.
The temp penetration rate – temp jobs as a percent of total nonfarm jobs – slipped to 2.04% in November compared to 2.05% in October.
November saw broad employment gains, but the mining sector lost 11,000 jobs, and the manufacturing sector cut 1,000 positions. Factory employment has declined in three of the last four months. In November, hospitals added 13,000 jobs. Three quarters of the job losses over this period have been in support activities for mining.
In November, professional and technical services added 28,000 jobs. It is also near the average monthly increase of 199,000 in 2013 and 260,000 in 2014.
Advertisement
“We believe the hurdle for dissuading the Fed from action at this time is extremely high”, said Michelle Girard, chief economist at RBS in Stamford, Connecticut.
