Employment Report Primes Fed for December Rate Hike
The nation’s unemployment rate fell to 4.6 percent in November as employers added 178,000 jobs, the Bureau of Labor Statistics reported Friday.
Analysts said the strong jobs report paves the way for the Federal Open Market Committee to raise the federal funds rate at its next policy meeting Dec. 13-14.
BLS reported the number of unemployed persons declined by 387,000 to 7.4 million, resulting in the 0.3 percent change in the unemployment rate (from 4.9 percent). The department revised Septembers’s numbers up from +191,000 to +208,000, and October’s numbers revised down from +161,000 to +142,000. With these revisions, employment gains in September and October combined were 2,000 less than previously reported. Over the past three months, job gains have averaged 176,000 per month.
The civilian labor force participation rate, at 62.7 percent, changed little in November, and the employment-population ratio held at 59.7 percent.
“Today’s strong jobs report for November, especially the sudden decline in the unemployment rate, gives more credence to the Fed’s likely increase of interest rates later this month,” said Mark Fleming, chief economist with First American Financial Corp., Santa Ana, Calif.. While the financial markets have already ‘priced in’ a rate increase, today’s report provides no reason to back out the rate increase expectation.
John Silvia, chief economist with Wells Fargo Securities, Charlotte, N.C., also saw little to impede an FOMC rate increase. “On balance, these results remain within the FOMC’s range for full employment and indicate the labor market continues to tighten,” he said.
BLS reported the average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in November. In manufacturing, the workweek declined by 0.2 hour to 40.6 hours, while overtime was unchanged at 3.3 hours. The average workweek for production and nonsupervisory employees on private nonfarm payrolls was unchanged at 33.6 hours.
Average hourly earnings for all employees on private nonfarm payrolls declined by 3 cents to $25.89, following an 11-cent increase in October. Over the year, average hourly earnings have risen by 2.5 percent. Average hourly earnings of private-sector production and nonsupervisory employees edged up by 2 cents to $21.73 in November.
Fleming noted the real estate finance industry has already seen the benefits of income growth on consumer home purchasing-power. “Real house prices are actually falling when one considers the purchasing power-adjusted price level driven by growing incomes,” he said. “This helps offset the mortgage rate increase that has ‘priced in’ the expectation of a Fed rate increase in two weeks. On a purchasing-power adjusted basis, real house prices decreased by 2.0 percent compared to September 2016, are 40.4 percent below their housing-boom peak in July 2006 and 19.9 percent below the level of prices in January 2000. This strong jobs report continues to support highly affordable housing.”
Silvia said the strong jobs report provides “solid support” for a December Fed move. Wage increases have resulted in real wage gains and profit pressures in a low productivity world,” he said.