Job gains keep unemployment at 5 percent

Fed Chair Janet Yellen twice this week expressed confidence that the USA economy is growing strongly enough to justify raising the federal funds rate, which has been stuck at 0-0.25 per cent since December 2008 to support a rebound from the Great Recession. It would be the first interest rate hike in almost a decade.

November job creation increased by 211,000 in November, giving the final confirmation that the Fed will likely raise rates this month, the Bureau of Labor Statistics said.

Stocks surged today, fueled by a November jobs report that showed a gain of 211,000 positions.

“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.

“The better-than-expected November jobs report seals the deal”, Gus Faucher, a senior vice president and macroeconomist at The PNC Financial Services Group, wrote in a research note Friday. By some estimates, the “neutral” rate – that is, the threshold above which the Fed would be hitting the brakes – could be as low as 1 percent.

While the report was positive, House Ways and Means Committee Chairman Kevin Brady said more needs to be done to improve the economy.

Average hourly earnings rose 2.3 percent in November from a year earlier, down from 2.5 percent in October. This report held special importance because it’s the last major economic report before the Fed meets to make the decision on rates in mid-December. “It would be a good thing to see the unemployment rate begin to rise if it were in concert with more of these people finding work or starting to look for work”. The Nasdaq composite increased 104.74 points, or 2.1 percent, to 5,142.27. The data “would appear to seal an interest rate hike at the Fed’s upcoming FOMC meeting”. But the Fed feels that rock-bottom interest rates – if allowed to linger for too long – could lead to risky behavior from investors and cause price bubbles. Unemployment is low, growth continues at a modest pace, and Ms Yellen said she was confident inflation would return to the Fed’s target over time.

“Retail trade employment continued on an upward trend in November (+31,000) and has risen by 284,000 over the year”. Construction companies added 46,000 jobs, the most in two years. Mining and some media companies lost jobs.