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Monday 24 October 2016

US November employment report seen cementing rate hike

Published 04/12/2015 | 09:25

Job opening listings are distributed during a job fair for the homeless at the Los Angeles Mission in the Skid Row area of Los Angeles, California June 4, 2015. REUTERS/David McNew - RTX1F5VN
Job opening listings are distributed during a job fair for the homeless at the Los Angeles Mission in the Skid Row area of Los Angeles, California June 4, 2015. REUTERS/David McNew - RTX1F5VN

US job growth likely remained solid in November in a show of the economy's resilience, which could pave the way for the Federal Reserve to raise interest rates this month for the first time in nearly a decade.

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A Reuters survey of economists forecast nonfarm payrolls rising 200,000, adding to the 271,000 jobs created in October.

The unemployment rate is expected to hold at a 7-1/2-year low of 5 percent. It is in a range many Fed officials see as consistent with full employment and has dropped seven-tenths of a percentage point this year.


"The employment report will give the Fed confidence to begin raising rates in December. It will have to be a disaster for the Fed to delay until 2016," said Ryan Sweet, senior economist at Moody's Analytics in Westchester, Pennsylvania.

The Labor Department's closely watched jobs report will be released on Friday at 8:30 a.m. (1330 GMT).

Fed Chair Janet Yellen struck an upbeat note on the economy when she testified before lawmakers on Thursday, describing how it had largely met the criteria the U.S. central bank has set for the Fed's first rate hike since June 2006.

Yellen said the economy needs to create just under 100,000 jobs a month to keep up with growth in the working age population. The Fed's policy-setting committee will meet on Dec. 15-16.

"We believe the hurdle for dissuading the Fed from action at this time is extremely high," said Michelle Girard, chief economist at RBS in Stamford, Connecticut.


Another month of strong job gains would allay fears the economy had hit a soft patch, after reports showing tepid consumer spending in October and a slowdown in services industry growth in November. Manufacturing contracted in November for the first time in three years.

Though wage growth likely slowed last month, economists say that would mostly be payback for October's outsized gains, which were driven by a calendar quirk. Anecdotal evidence, as well as data on labor-related costs, suggest that tightening job market conditions are starting to put upward pressure on wages.

Average hourly earnings are forecast rising 0.2 percent after increasing 0.4 percent in October. That would lower the year-on-year reading to 2.3 percent from 2.5 percent.

"Wage growth finally appears to be firming after showing few signs of progress even as slack declined quickly," said David Mericle, an economist at Goldman Sachs in New York.

Other labor market measures that Fed officials are eyeing as they consider lifting the benchmark overnight interest rate from near zero are expected to have held steady last month.

But the labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, likely rose from a near 38-year low of 62.4 percent.

Employment gains in November were likely broad-based, though manufacturing and mining probably lost more jobs.

Manufacturing has been crippled by a strong dollar, efforts by businesses to reduce bloated inventory and spending cuts by energy companies scaling back well drilling and exploration in response to sharply lower oil prices.

Mining employment has already declined by 109,000 since reaching a peak in December 2014.

Oilfield services provider Schlumberger (SLB.N) this week announced another round of job cuts in addition to 20,000 layoffs already reported this year. The company said it expected the slowdown in drilling activity to continue in 2016.

Further gains are expected in construction payrolls. The services sector will likely account for the bulk of the increase in employment, but retail and courier payrolls are a wild card as company are now starting their holiday hiring a bit earlier than in prior years.


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