3 Conclusions from the November Jobs Report
The jobs report for November released Friday doesn't just make it a near-certainty that the Federal Reserve will hike interest rates later this month. The data also further confirm the divergence in the policies of the Fed and the European Central Bank. And they highlight the cyclical and structural complexities facing the U.S. economy, which will require the Fed to pursue the loosest tightening cycle in its modern history.
The U.S. economy created 211,000 new jobs in November, according to the data released by the Labor Department. After favorable revisions to prior months’ data, this translates to a robust 12-month average of almost 240,000 monthly job gains. The unemployment rate was unchanged at 5 percent, and earnings grew at an annualized pace of 2.3 percent, thanks to a 0.2 percent increase in hourly earnings in November. The participation rate edged up to 62.5 percent from 62.4 percent.
The policy implication that will attract the most attention in markets and beyond is that it is now almost certain the Fed will raise interest rates this month. Only a huge, unanticipated negative noneconomic shock -- in the U.S. or elsewhere -- would prevent the central bank from announcing its first such move in almost 10 years at the conclusion of its Dec. 15-16 policy-making meeting.
The second consequence for policy is to confirm that the ECB and the Fed, the world's two most systemically important monetary institutions, are on visibly divergent policy paths. Although trader sentiment about the degree of this divergence will fluctuate depending on policy remarks and data -- just look at the reaction on Thursday, after the ECB was perceived by traders to have under-delivered -- it would be hard to deny that greater policy fluidity is leading to higher exchange and interest-rate volatility.
Third, the uptick in the participation rate, though small and based on historically low levels, is an encouraging indication of progress for those who had dropped out of the labor force. It suggests that labor-market slack still is greater than the 5 percent unemployment rate would strictly indicate. That would reinforce the Fed's decision to carry out a shallow and irregularly paced path of rate hikes with an endpoint that is lower than historical averages. Nonetheless, the structural headwinds facing the U.S. economy highlight the additional need for a policy response that extends far beyond central banks and must include governments and legislatures.
The net impact of this data is to clarify the outlook for monetary policy in the weeks and months ahead. There still is little prospect, however, that the over-reliance on central banks as an elixir for the economy will give way to the broader policy response needed to ensure that growth is sufficiently high, sustainable and inclusive. Sadly, the positive November employment report is likely to fuel further policy complacency in Congress.
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