Jobs: Fed gets green light to hike rates

The US is on course for its first interest rate increase in nine years later this month following a strong employment report.

Friday’s news follows last month’s strong report, when the Labor Department said 271,000 jobs were created in October – the most in all of 2015 – with unemployment falling slightly from 5.1 to 5 percent.

Job creation has been averaging around 200,000 a month this year, a figure Ms Yellen said was “quite a bit” above the number needed to continue absorbing slack in the labour market.

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”.

Besides the strong job gains, the average hourly pay also edged up compared with its level a year ago, with average hourly earnings rising 4 cents to 25.25 USA dollars in November. That would lower the year-on-year reading to 2.3 percent from 2.5 percent.

“Job gains occurred in nearly every sector, and all secondary measures of labor market distress were down”, says Hicks, director of Ball State’s Center for Business and Economic Research.

In November, 60.5% of industries reported higher employment, the largest share since February and up from September’s five-year low of 54.2%. This should put to bed any doubts about whether the Fed will announce a rate increase later this month.

“The bottom end of the range of forecasts in Reuters polls on non-farm payroll figures for the coming year has been consistently trimmed lower by analysts over the past few months – just 100,000 jobs per month on average in some quarters of next year”, writes Siddharth Iyer at Reuters’ blog Macroscope.

Dolega said wage gains are being held back by steep job cuts in mining, a category that consists mostly of oil and gas drilling and has shed 14 percent of its jobs in the past year.

“The Fed says its actions are data-dependent, and this (jobs report) is a piece of data that argues for a rate increase”, Mayland said. Fed Chair Janet Yellen said this week the job market would soon return to normal as long as the economy keeps growing at its current pace. 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. With the new data, “a rate hike at the December 15-16 Fed meeting is (almost) a sure thing”. In the past three months, job gains have averaged 218,000 per month. The unemployment rate was in line with expectations.

Rate hike worries hit investors again on Wednesday, after stocks had pretty much flat-lined for the previous several sessions.

Yellen and her fellow central bankers have said repeatedly the decision to raise rates will be “data dependent”.