Three Fed rate hikes likely this year, starting this week

The case for the U.S. Federal Reserve to raise interest rates later this week may have been sealed by another strong employment report.

Job gains in construction, education, manufacturing, healthcare and mining helped push the United States unemployment rate down to 4.7% from 4.8%, while rising demand for workers and minimum wage increases helped sustain year-on-year wage growth of 2.8%.

Friday’s report was the first to cover a full month under President Donald Trump.

The growth in new U.S. jobs has been gathering pace in recent months, and there were other signs that USA businesses continued to gain strength in February.

But there’s been no signifiant jumps in business or consumer spending – even in the wake of Donald Trump’s November 8 presidential win that gave the stock market a surge.

The employment-to-population ratio rose to 60%, the highest since February 2009, from 59.9% in January.

The labor force expanded last month as more people were pulled into the job market. Between January of 1990 and January of 2017 the share of United States employment in durable goods manufacturing halved from 10% to 5%.

Last month’s hiring was boosted by 58,000 additional construction jobs, the most in almost a decade. Mining added 8,000 jobs, for a total of 20,000 jobs added since the industry’s low in October 2016. Job additions were, in fact, broad-based with the lone exception of retailers.

“We’re just at a different place now than in 2013 when there was a lot of angst and uncertainty about the economy’s prospects, ” said Mark Zandi, chief economist at Moody’s Analytics. “Wages had been the one sore spot in the labor market data, and I think that’s coming through here”. When the moment has come to raise rates the past two years, the Fed has often passed, deciding to err on the side of caution rather than risk disrupting a fragile economy by stopping the flow of cheap credit too quickly. The job market also showed signs of tightening, with average hourly earnings rising 2.8 percent over a year ago.

First off, that’s the overall number. If you are looking to refinance, you should be able to find five-year fixed rates in the 2.69% to 2.84% range, depending on the terms and conditions that are important to you.

One could argue, of course, that getting Government finances in order after such a deep recession was necessary and that slower than optimal growth was a small price to pay, but whatever the merits of the policies, the effect was to leave central banks carrying the can.

Our variable rates will move when the Bank of Canada (BoC) adjusts its policy rate, and the Bank is expected to keep a steady hand on its tiller regardless of any Fed-led changes in bond yields. United States stock index futures were trading higher, while the dollar was weaker against a basket of currencies.

Now, that was the January rate, and we’re talking about February jobs numbers. Construction jobs grew at the fastest pace in 10 years. Maybe they’ll be different, but by how much? “Average wages are starting to grow at rates not seen since 2000, the last time the USA confronted a severe worker shortage”, he wrote.

Although the decision was widely expected before, Friday’s jobs report from the Labor Department provided further reason for raising rates.