The Corner

November’s Stellar Jobs Report All but Guarantees a Rate Hike

Another batch of solid figures on the labor market all but seals the deal that the Federal Reserve will (finally!) start raising short-term interest rates on December 16.

Payrolls increased 211,000 in November and were revised up for both September and October. Meanwhile, civilian employment, an alternative measure of jobs that includes small business start-ups rose 244,000 while the unemployment rate remained 5.0 percent and the labor force grew 397,000.

Notably, payrolls at home builders spiked up 32,000 for the month, the largest increase in residential construction for any month since 2005. We expect continued strong gains in home building jobs in the year ahead as that sector continues to ramp up activity .

Moreover, workers’ earnings continue to move higher. Average hourly earnings rose 0.2 percent in November and are up 2.3 percent versus a year ago. (Remember, this measure excludes irregular bonuses/commissions and fringe benefits, and given rising health-care costs is probably understating the growth in employment costs.) And although total hours worked slipped slightly in November itself, they were revised up substantially for October. As a result, total hours worked are up 1.9 percent versus a year ago and total wages are up 4.2 percent in the past year, more than enough to support further increases in consumer spending.

Despite the good news, we fully expect the some analysts to dwell on any negative information they can find. This month, that’s likely to be a 137,000 increase in part-time jobs. However, the household survey, where that data comes from, is very volatile from month to month and part-time jobs are still down 455,000 from a year ago. Because of the monthly gain in part-timers, the U-6 unemployment rate, what some analysts call the “true” unemployment rate because it includes discouraged workers and part-timers who say they want full-time work, rose to 9.9 percent from 9.8 percent in October. However, the U-6 rate was 11.4 percent a year ago and peaked at 17.1 percent in 2009-10, so even the U-6 rate is down substantially in the past several years.

Although it ticked up to 62.5 percent in November, the labor force participation rate remains very low, a reflection of retiring Boomers, too easily available disability benefits, and overly generous student aid.

The bottom line is the trend in payroll growth remains just north of 200,000 and should expand about 2.5 million in 2016, enough to keep the Fed raising rates at least a few times next year. 

Robert Stein is an economist for an asset-management firm and a former deputy assistant Treasury secretary for macroeconomic analysis.


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