Instant Analysis: November jobs report

Scott Anderson
Posted by Scott Anderson
Chief Economist

This is a solid payroll report any way you slice and dice it.

Job creation is accelerating into the New Year. The unemployment rate is plunging, and income growth and hours worked are on the rise as well. Goods-producing employment growth is ramping up with strong November gains in manufacturing and transportation, while service sector job gains are holding steady. Financial services shed 3K jobs on less mortgage activity.

November job gains were well above economist consensus expectations, but in-line with our own estimates at 203K jobs. We had forecast 200K.

The biggest surprise in my view: Big drop in the U.S. unemployment rate to 7.0 percent was far larger than expected. The U-6 unemployment rate, the broadest measure of unemployment, fell to 13.2% from 13.8%. The labor force participation rate improved to 63.0% from 62.8%. The imminent threat of an end to extended unemployment benefits at the end of the year may be forcing more folks back into the labor market.

This will fuel financial market fears of Fed tapering at the December meeting. I still think January is more likely, but it’s a close call. New fear: the U.S. economy could reach 6.5% unemployment far quicker than the Federal Reserve has been forecasting.

Fear of Fed fund rate hikes could also start rising in the Fed funds futures market, pricing in the first rate hike sometime in early 2015, instead of end of 2015. I believe the rapid decline in the unemployment rate raises the odds of a reduction in the Fed’s unemployment rate threshold to 6.0% from 6.5% to strengthen forward guidance that the Fed funds rate will remain low for some time to come.


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