Unemployment Report Has Warnings But Won't Stop Rate Hike

The latest employment report certainly looks good from the headline numbers but there are some disturbing elements in the details. Job growth for the month of November was 178,000, just a hair over the consensus of 170,000. Adjustments to the prior months of September and October nearly cancelled each other out but it is worth noting that October’s number was revised down by 19,000. The headline unemployment rate plummeted to 4.6% which at first blush sounds fantastic. But the drop is driven by an incredible 446,000 people dropping out of the labor force, rather than abundance of people suddenly becoming employed. The employment population participation rate for 25 to 54 year olds dropped from 81.4% to 78.1%. In addition, seasonal retail hiring for the holiday season also appears to be sluggish, down nearly 80,000 from the same period last year, as well as there being a decline in hourly earnings after a few months of positive gains.

The report can really be used to confirm whatever biases you may have about the economy. Bill McBride considers it another solid report while Kevin Drum believes it to be disappointing. I’m pretty sure that a similar reaction might be felt at the Fed. But even with the warning signs in this report, I still believe that the Fed will hike interest rates later this month. There is simply not enough in this report to stop that from happening. However, there is still plenty of uncertainty in the global economy today, with the fragile state of Europe, a Trump Presidency, and a newly united OPEC that has agreed to cut production and the downside risks for the economy are still quite high. But the Fed will still go ahead and raise rates, but will be doing so with their fingers crossed that it won’t be a repeat of the debacle from a year ago.