Employment Report a Green Light for Fed to Raise Rates

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November Nonfarm Payrolls  Up 211,000

By Lucia Mutikani

WASHINGTON -- U.S. employment increased at a healthy pace in November, in another sign of the economy's resilience, and will most likely be followed by the first Federal Reserve interest rate rise in a decade later this month.

Nonfarm payrolls rose 211,000 last month, the Labor Department said Friday. September and October data was revised to show 35,000 more jobs than previously reported.

The unemployment rate held at a 7½-year low of 5 percent, as people returned to the labor force in a sign of confidence in the jobs market. The jobless rate is in a range many Fed officials see as consistent with full employment and has dropped 0.7 of a percentage point this year.

%VIRTUAL-pullquote-The clear message from the labor market to the Fed is: 'Just do it!'%"The employment report should remove the final doubts about a rate hike at the December meeting. The clear message from the labor market to the Fed is: 'Just do it!'" said Harm Bandholz, chief U.S. economist at UniCredit Research in New York.

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 U.S. central bank has set for the Fed's first rate hike since June 2006.

Yellen said the economy needs to create just under 100,000 jobs a month to keep up with growth in the working age population.

A Reuters survey of banks that deal directly with the Fed showed all but one of the so-called primary dealers expect the Fed will hike rates at the Dec. 15-16 meeting. They see only a gradual pace of monetary policy tightening through 2016.

The U.S. dollar firmed against the euro after European Central Bank President Mario Draghi said in New York that the ECB could deploy more stimulus if needed. U.S. Treasury debt yields initially rose, but later fell after OPEC failed to agree an oil production ceiling. U.S. stocks ended higher.

Soft Patch

The second month of strong job gains should allay fears the economy has hit a soft patch, after reports showing tepid consumer spending in October and a slowdown in services industry growth in November. Manufacturing contracted in November for the first time in three years, according to one business survey.

A strong U.S. dollar and spending cuts by energy companies have been headwinds to the economy. A separate report from the U.S. Commerce Department on Friday showed the international trade deficit widened in October as exports hit a three-year low.

US Economy
Wilfredo Lee/APJob seekers attend a job fair at the Dolphin Mall in Miami.
Though wage increases slowed last month, economists say that was mostly payback for October's outsized gains, which were driven by a calendar quirk. Anecdotal evidence, as well as data on labor-related costs, suggest that tightening job market conditions are starting to put upward pressure on wages.

"Payroll gains were despite continued weakness in manufacturing and energy sectors, suggesting little spillover into the rest of the economy," said Samuel Coffin, an economist at UBS in Stamford, Connecticut.

Average hourly earnings increased 4 cents, or 0.2 percent from 0.4 percent in October. That lowered the year-on-year reading to 2.3 percent from 2.5 percent in October. The average workweek, however, fell to 34.5 hours from 34.6.

Other labor market measures watched by Fed officials were mixed.

The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, rose to 62.5 percent from a near 38-year low of 62.4 percent.

Broad Gains

But a broad measure of joblessness that includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment rose 0.1 of a percentage point to 9.9 percent. That reflected an increase in part-time workers.

Employment gains in November were broad-based, though manufacturing shed 1,000 positions. Factory employment has declined in three of the last four months.

Manufacturing has been crippled by dollar strength, efforts by businesses to reduce bloated inventory and investment cuts by energy companies scaling back well drilling and exploration in response to the sharply lower oil prices.

Mining purged 11,000 jobs, with oil and gas extraction losing 2,400 positions. Mining employment has dropped by 123,000 since reaching a peak in December 2014. Three quarters of the job losses over this period have been in support activities for mining.

Oilfield services provider Schlumberger (SLM) this week announced another round of job cuts in addition to 20,000 layoffs already reported this year.

Construction payrolls increased 46,000 last month, the largest gain since January 2014. Retail jobs rose 30,700 and transportation and warehousing employment rebounded after two straight months of declines.

Professional services added 27,000 jobs and government payrolls increased 14,000 last month.

"It's hard not to like today's reading on the labor market. We can anticipate further improvement ... next year," said Scott Anderson, chief economist at Bank of the West in San Francisco.

9 Numbers That'll Tell You How the Economy's Really Doing
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Employment Report a Green Light for Fed to Raise Rates
The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
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