November yields strong jobs report; Fed rate hike forthcoming

In one of the better months of the Obama Administration, the Department of Labor released its monthly jobs report which revealed 211,000 jobs were added to the economy in November.

November’s report is the third-straight month which witnessed over 200,000 jobs created; the unemployment rate now hovers around 5 percent, while average hourly earnings have grown 2.6% since January 2015

The healthcare sector yielded the most job creation with 24,000 positions filled; in sum, over 450,000 jobs in healthcare have been created since January.

Dissimilarly, manufacturing retreated for the first time in three years; over 1,000 jobs were lost.

Anticipating sustained economic growth, the Federal Reserve is expected to increase interest rates for the first time in seven years.

Allowing little could change a potential increase in interest rates, Federal Reserve Chairman, Janet Yellen, stated:

“(Normalizing rates) will be a testament to how far our economy has come in recovering from the effects of the financial crisis and the Great Recession.”   

Despite the outward signs of an improving economy, not all legislators see daylight:

“We can do much more to kick this economy into high gear.  I’m worried about the continued lag in business investment which drives Main Street jobs.  They are holding back because of the uncertainty that Washington has created,” said Kevin Brady (R-TX), House Ways and Means Committee Chairman.

Similarly, Senator Dan Coates (R-IN), said:

“(Jobs numbers) increase the likelihood that the Federal Reserve will raise interest rates later this month, changing interest rates is not a long-term prescription for achieving a more dynamic economy.”

Analysis

This is welcome news for millions of job seekers.

Entering year seven of the economic recovery, despite often languid growth, this jobs report illustrates signs of authentic economic maturation.

Despite virtually absent interest rates, the benefits of a rate increase are manifold:  (a) Higher rates will earn more in interest for bond holders and investors with Certificates of Deposit (CDs); (b) an uptick in rates usually slows inflation; (c) banks will more readily lend; and (d) homes sales will likely see a jump.

While Yellen promising cautious increases, the benefits reaped outweigh an expected volatility in the markets.  In face of virtually nonexistent interest rates, investors avoided bonds and CDs, preferring to take risks on Wall Street as the markets furnished higher returns.

As interest rates ascend, investors are likely to shift some of their personal assets into more secure CDs or bonds, causing some brief volatility in equity and high-quality bond markets to the downside.

Despite the hazard of increased volatility in markets, a shift occurs because more people tend to balance their investments.  This is a familiar pattern on Wall Street and will frighten few.

With their margins flattened, banks and the remainder of the financial sector are rejoicing.  This expected rate hike signals a return to an orderly economy.

 

[WSJ.com] [bls.gov] [Photo courtesy IBTimes]