Employers added another 228K net new jobs in November, surpassing most economists’ forecasts. Job growth last month proved broad-based across sectors with notable strength in goods-producing categories, as we forecasted.
Construction added 24K jobs, while manufacturers added 31K jobs last month. Construction employment is rising on solid national housing demand and rebuilding activity in the hurricane-impacted regions of the country. Manufacturing is benefiting from stronger business equipment spending, global demand, and the need to rebuild wholesale and retail inventories. Health care added 54K jobs, business services increased by 46K, and trade and transportation added 32K jobs.
The unemployment rate held at a low 4.1% as the labor force increased by 148K. The labor force participation rate was unchanged at 62.7% and the average duration of unemployment dropped to 25.4 from 26.0 weeks.
Average hourly earnings growth improved last month, increasing 0.19% and 2.47% from a year ago. The earnings gain remained below consensus expectations, but in line with our forecasts. Moreover, average hourly earnings for October were revised lower to ?0.1%. Employers have been reluctant to boost wages, despite over 6 million open positions and nearly one open job for every unemployed worker.
Overall, a solid payroll report very much in line with our expectations. This jobs report cements a rate hike from the Fed next week, in my opinion, but the weak earnings growth will keep the pace of rate hikes next year in doubt. We think inflation will be slow to pick up and anticipate only two additional Fed rate hikes next year.
Treasury yields are mixed this morning. The 2-Year Treasury yield is down 1.0 basis point from yesterday’s close at 1.792%, while the 10-Year Treasury yield is up 0.9 basis points from yesterdays close to 2.372%. The 2-10 Treasury spread widened to 58.2, up 1.9 basis points from yesterday. The futures market probability of another Fed funds rate hike by December 2017 remained unchanged at 98.3% this morning.
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