It seems increasingly likely that the Federal Reserve will finally increase interest rates when it meets later this month, ending a near-zero rate policy that has been in force since December 2008. The fact that the world’s largest economy has needed seven years of accommodative monetary policy in the wake of the Global Financial Crisis underlines just how severe that event was.
The latest supportive data comes in the shape of the November job creation figure which came in at a healthy 211000, beating expectations slightly. The situation was further bolstered by upwards revision of the job creation figures for September and October to reflect an additional 35000 jobs. The “jobless” level remains at 5% of the workforce which is the lowest value seen for seven and a half years. To be considered as “jobless” one must be registered as a job seeker and actively looking for work. A continuing concern is the number of those in work who want to work more hours than are currently available to them.
Analysis of the most recent data suggests that the retail, food services and construction sectors all saw good levels of new job creation. On the negative side of the balance sheet, jobs were lost in manufacturing (1000) and the mining industry (11000) which is being hit by weak global demand and low commodity prices.
Average hourly earnings nudged upwards by a whopping four cents in November, taking them to $25.25, the 0.2% hike followed on from a 0.4% rise the previous month. It is doubtful if individuals will note the improvement in their purchasing power, but integrated over the whole US workforce, it means that consumer spending could tick upwards which would be good for the economy.
The Fed’s decision will be taken during its meeting on the 15th and 16th of December. It could be that this is an ideal time to increase rates since business activity will be winding down for the Christmas break and will give investors time to absorb the impact (or otherwise) of any rate hike which will be incremental, in any case.