US: November job report give green light for rate hike – Nomura

Research Team at Nomura, notes that according to the US Bureau of Labor Statistics (BLS), nonfarm payrolls increased by 178k in November, in line with market expectations but above Nomura’s forecast (Nomura: 160k, Consensus: 180k).

Key Quotes

“Government payrolls increased by 22k in November, implying that private payrolls grew by 156k, in line with our expectations but below market expectations (Nomura: 155k, Consensus: 175k). The two-month payrolls net revisions were minimal only reducing the level of payrolls by 2k.”

“The unemployment rate dropped to 4.6% (4.640%) from 4.9% (4.876%), finally returning back to levels seen prior to the Great Recession. The labor force participation rate declined modestly by 0.1pp to 62.7%, which likely contributed to the unemployment rate edging lower as some workers left the job market. But better job growth also had an influencing in putting downward pressure on the jobless rate.”

“On the wage front, average hourly earnings declined by 0.1% m-o-m (Nomura: +0.1% mo-m, Consensus: +0.2% m-o-m) following a 0.4% m-o-m increase in October. We think that the strong October wage growth was transitory as Hurricane Matthew likely cut the average workweek short, leading to the strong hourly wage growth in October. The decline experienced in November is likely just a reversal to previous trend.”

“The bottom line is that the labor market made further progress toward full employment levels. The pace of job growth remains elevated and the unemployment rate declined. The one negative was wage growth slowed, but some of this can be explained away by one-off weather effects.” 

“But the argument around the amount of slack in the labor market is unlikely to be resolved. We and others will continue to scrutinize is changes to the unemployment rate and labor force. One source of debate between the hawks and the doves at the Fed is how many more people can be drawn into the labor force as the economy continues to improve? A single month of data doesn't inform that debate, but today's unemployment rate going down to 4.6% does raise an eyebrow. But as for the near-term policy debate, today’s employment report should give the FOMC a green light to raise rates in December.”