US jobs report paves way for rate hike

Non-farm payrolls increased a seasonally adjusted 211,000 in November, the US Labor Department said on Friday, beating analysts' expectations of 200,000.

Data for September and October was also revised upwards by a combined 35,000 new hires, adding to the optimism that the world's largest economy is back on solid footing after the worst financial crisis in nearly a century.

The stronger-than-expected numbers kept the unemployment rate steady at a seven-and-a-half year low of 5 percent as the upbeat outlook drove more Americans to try their luck on the job market. As a result, the labor force participation rate - the share of working-age people 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.

It's hike time

The monthly jobs reports have become the subject of microscopic dissection as markets are looking for signs that the Fed could raise record-low interest rates for the first time since 2006.

However, Friday's report attracted particular attention. It marks the last major dispatch of economic data before US central bankers hold their final policy meeting of the year on December 15-16. It also comes after Fed Chair Janet Yellen expressed on two separate occasions this week that the nation's economy has grown so strong that it is safe to raise rates.

Ever cautious, the Chairwoman warned US lawmakers during a hearing against reading too much into Friday's figures. But it seems no one got the message. Analysts were quick to hail the report as a clear sign that a rate hike is coming just in time for Christmas.

"The 'data dependent' Fed will be reassured that the economy is showing no sign of succumbing to worries about the global outlook," said Chris Williamson, chief economist at Markit. "A December rate hike now looks to be in the bag."

"Another strong jobs report from the US today [Friday] has all but guaranteed a Fed rate hike on 16th December," agreed Oanda analyst Craig Erlam.

On Twitter, economist Justin Wolfers said:

Chris Gaffney, president at EverBank World Markets, sounded equally certain: "We cleared the last hurdle for a rate increase. The Fed was looking for some positive movement on wages, and we got a little bit of that. There is absolutely nothing in this report that will keep the Fed from raising rates."

Rate hike 'almost entirely priced in'

Meanwhile, US stocks surged as markets rejoiced at the solid jobs report. The Dow Jones Industrial Average jumped 1.4 percent in early trading, while the Nasdaq and S&P 500 rose 1.3 percent and 1 percent respectively.

This "reaction in the markets," said Gaffney, "reflects the fact that this rate hike is almost entirely priced in."

CME Group's FedWatch site put the probability of a rate hike at the upcoming policy meeting at 79.1 percent.

Mixed signals?

Nonetheless, a few indicators could lead Fed officials to hold their fire for just a little while longer. While hiring averaged nearly 220,000 in the past three months, pay gains remain modest. Average hourly wages rose 2.3 percent from 12 months earlier, and just 0.2 percent, or $0.04, from October.

At the same time, US exports and manufacturing have been crippled by a strong dollar, while low oil prices continue to hurt the country's important energy sector.

Still, most other sectors grew. Construction companies added a two-year high of 46,000 jobs, bolstered by more homebuilding and new infrastructure projects, while retailers hired 31,000 workers, and the government added 14,000 positions.

In short, Americans are back in spending mode. They're buying new homes, purchasing new cars, and eating out more - offsetting weak growth overseas and low oil prices. Many are betting that this will be enough to reign in a new era for the Fed.

pad/cjc (AP, AFP, Reuters)