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November Jobs Report

Written by: Frank Fazio

The U.S. economy continued to add jobs at a healthy pace, as 228,000 jobs were created in November coming in ahead of economists’ expectations of 195,000. Figures for September and October were revised higher for a net upward revision of 3,000 jobs.   This extends the economy’s job gain streak to a record 86 straight months, and the two month gains in payrolls was the strongest since mid-2016. The 12-month average ticked up to 173,000 jobs created per month, which is slightly below the 180,000-monthly average for 2016. Economists look at payroll gains above 100,000 a month as the level to keep putting downward pressure on the jobless rate. This level remained unchanged, as Unemployment Rate came in at 4.1% in November, the lowest reading since December 2000.

Wages continued to grow, albeit at a slower pace than economists’ expectations. Wages were expected to increase 2.7% year-over-year in November, but came in at a 2.5% annual growth rate. Wage gains for October were revised lower as well. Although the labor market continues to tighten given the strong job creation figures, wage growth continues to be tepid. The lack of accelerating wages may cause the Federal Reserve to slow down the pace of rate hikes in 2018. The current probability for a rate hike next week remains above 90%, but odds of a March hike have declined since this morning’s release. However, medium- to long-term bond yields rose after the report, which helped to widen the spread between short term and intermediate-term bond yields. This indicates rising expectations for economic growth over the next 5-10 years.

This report may be a positive sign for further equity appreciation, as it signals the economy continues to move towards full employment but slower wage growth may result in slower pace of rate hikes than expected in 2018. Low interest rates, coupled with declining corporate taxes, may result in further expansion in earnings as we head into 2018. We will continue to monitor the pace of wage growth in our assessment of the economy and potential for tighter monetary policy from the Federal Reserve in 2018.