Hicks: ‘Unambiguously Positive’ Report Could Nudge Fed to Boost Rates

A positive jobs report for November “all but guarantees” the Federal Reserve will raise USA interest rates later this month, experts say.

The economy’s strengths were evident in last month’s hiring patterns: Construction firms added 46,000 jobs, the biggest increase in two years.

September and October data was revised to show 35,000 more jobs than previously reported.

“October and November have bounced back so strongly”, said Phil Orlando, chief economist at Federated Investors.

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. Official unemployment remained at 5 percent, while average wages for hourly private sector employees grew by a miserly 0.2 percent to $25.25 an hour.

“To simply provide jobs for those who are newly entering the labour force probably requires under 100,000 jobs per month”, with anything above that helping “absorb” those who are unemployed, discouraged or had dropped out of the labour market”, Ms Yellen, who was speaking before Congress’ Joint Economic Committee, said in a question and answer session.

The closely watched employment report came a day after Fed Chair Janet Yellen struck an upbeat note on the economy when she testified before lawmakers, describing how it had largely met the criteria the USA central bank has set for the Fed’s first rate hike since June 2006. Unemployment is low, growth continues at a modest pace, and Ms. Yellen said she is confident inflation will return to the Fed’s target over time.

Employment gains in November were broad-based, though manufacturing shed 1,000 positions.

As measured by the personal consumption expenditures price index, the Fed’s favorite gauge, inflation rose just 0.2 percent in 12 months through October, well below the central bank’s 2 percent goal. Since the 2008 financial collapse, near-zero or zero interest rates have been a critical component of the efforts to funnel trillions of dollars into the markets, inflating stock values even as the real economy remains mired in crisis.

While payroll gains would need to be larger than that to encourage discouraged workers back into the labor force, even that threshold would still be “quite a bit less” than 200,000 per month, she said.

“While this report can help justify a rate hike in December, it can’t justify anything more than a very gradual path of rate hikes”, said Brian Jacobsen, a portfolio strategist at Wells Fargo Funds Management in Menomonee Falls, Wisconsin. Jobless rate is now at 0.5 percent. That is below October’s annual increase, which had been the strongest in six years. Three-quarters of the job losses over this period have been in support activities for mining. This amount is almost identical to the 199,000 monthly jobs averaged during 2013 and less than 2014’s monthly average of 260,000. Retail jobs rose 30,700 and transportation and warehousing employment rebounded after two straight months of declines.

Yet solid consumer spending and the housing recovery have underpinned payroll gains, more than offsetting industrial output that’s been curtailed by a strong dollar that has hobbled exports and bolstered imports.