The jobs market is moving from strength to strength.
According to numbers released this morning, the economy added 292,000 jobs during December. In addition to this, the numbers for October and November were revised to show that the economy added 50,000 jobs during that period. Those numbers made 2015 the best year for jobs since 1999. The unemployment rate stayed put at 5 percent and wage growth rose less than earlier forecasts. The labor force participation rate remained more or less the same at 62.6 percent.
Warm Weather a Factor
In a research note, Capital Economics, a research consultancy, stressed the role of unseasonably warm weather in the numbers. "The record warm temperatures in the fourth quarter, and December in particular, probably played a role. It's notable that construction employment increased by a massive 45,000 last month and more than 120,000 in the fourth quarter," the firm's economists wrote.
The numbers are a welcome relief for the markets after the S&P 500 had its worst start to the new year due to bad news from China's stock markets and low manufacturing-related numbers in the U.S. Economists said the numbers will "calm" fears and reassure investors about the U.S. economy's performance.
Does This Mean an Interest Rate Hike?
Given that the numbers portray a near-ideal employment scenario, several commentators have alluded to the possibility of an interest rate hike by the Federal Reserve.
However, the Fed will probably adopt a cautious stance before committing to another rate increase. This is because job markets are volatile and can swing a lot between lows and highs. For example, the jobs report for November and December 2014 showed strong numbers, but the numbers for January 2015 went south, delaying the Fed's plans to hike interest rates. In addition, the low wage growth numbers point to a chronic low-inflation problem that needs to be resolved for the Fed to move ahead with tightening the economy.
The Wall Street Journal quotes Mark Hamrick, senior economic analyst at Bankrate.com, as saying that if the economy “can continue to stage this kind of improvement and if there’s confidence that inflation will truly firm, then it isn’t unreasonable to expect that the central bank will follow through on its own forecast for as many as four rate hikes this year.”
The Bottom Line
The monthly jobs report provided a cheer, albeit brief, to the markets in a week of dismal economic news abroad and at home. It has also increased the chances of a Fed hike later this year. However, traders and economists have adopted a cautious stance towards the domestic economy, given the turmoil in China and weak manufacturing data at home.
Read more: Robust Jobs Report Cheers Investors | Investopedia http://www.investopedia.com/articles/investing/010816/robust-jobs-report-cheers-investors.asp#ixzz3wg5RfQT6
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