Solid US jobs report clears way for Fed rate hike

The Fed is very likely to increase interest rates at the December 15/16 meeting as the US labor market continues to improve. The US economy created 211k new jobs in November while the unemployment rate remained at its seven-year low of 5.0%.

Nonfarm payrolls increased by 211k in November, a tad above forecasts (consensus 200k). The unemployment rate held at 5.0%, as expected.

According to the FOMC October statement, policymakers were looking for "some" further improvement in the labor market before raising rates. The data received since then including today's employment report should be good enough to make the case for a rate hike at the coming meeting.

The much debated weakness in mining and manufacturing is not keeping the overall labor market from improving. The increase in the number of jobs by 211k was exactly in line with the monthly average in 2015, even if it cooled somewhat relative to a very strong and upwardly revised +298k in October. Note that on trend fewer than 100k new jobs are required to cover new entrants to the labor market. Thus unemployment should continue to trend down even if it stalled in November. This should more outweigh the only negative aspect of the report, namely the increase in the widest measure of underemployment (which comes from a different survey) by a tenth to 9.9%, in particular as this comes on the back of a significant drop in the previous months.

Average hourly earnings increased 0.2% from October, the expected modest gain but coming on the back of a strong +0.4% in October. While wage gains should accelerate over time, the November data underline that this will probably be a slow and uneven process.

"Fed chair Janet Yellen has signaled in recent statements that only significant negative shocks would keep her from pushing for an interest rate hike on December 15/16. This employment report was probably the last major event before that meeting that had the potential to make her hesitate. While it may not be spectacular it is clearly good enough to clear the way for a historic liftoff at the next FOMC meeting"notes Commerzbank.