Weak jobs report unlikely to nix rate hike – USA TODAY

The job gains recorded by the Labor Department bounced back strongly in October.(Photo: Getty Images)

Investors looking to the November jobs report, due out Friday, as a litmus test for whether the Federal Reserve will raise interest rates this month for the first time in nearly a decade, will likely be disappointed.

Economists say a rate hike is all but certain and it would take payroll gains significantly below the 200,000 projected by analysts to even give Fed policymakers pause about pulling the trigger. Payroll processor ADP’s estimate Wednesday that the private sector added 217,000 jobs last month lowers the odds of such an outcome.

“The hurdle is strikingly high for them not to raise rates,” says Tom Porcelli, chief US economist of RBC Capital Markets. “You would need a significant outlier.”

Since October, Fed policymakers have signaled they’re likely to hoist rates at a meeting on Dec. 15-16 but a final decision will depend on economic reports in the intervening weeks. The jobs report is by far the most significant piece of remaining data they’ll review. But the officials also have indicated they’re poised to hike rates because of cumulative progress in the labor market in recent years.

The economy has added a healthy average of 206,000 jobs a month so far this year and the unemployment rate has fallen to a near-normal 5% from 10% in 2009. The monthly average slipped to 145,000 in August and September, but rebounded to a muscular 271,000 in October, bringing the average since June to about 195,000, Fed Chair Janet Yellen noted in a speech Wednesday.

The strong October report calmed worries about a sustained slowdown and lessened the significance of any weak data that may be highlighted in the November payroll survey, says Jim O’Sullivan, chief US economist of High Frequency Economics.While a strong dollar, global weakness and low oil prices have hurt exports and manufacturing, domestic demand remains strong.

So what kind of job gains total Friday could at least raise doubts about a Fed move?

In recent weeks, several Fed officials have said monthly advances of 100,000 to 150,000 are acceptable in the latter stages of a recovery, when the labor market typically tightness, Porcelli noted. He says a total below that would cause some policymakers to reconsider, but it likely would take job losses — an almost unthinkable scenario – to actually to throw them off course.

O’Sullivan says virtually no single monthly payroll number would dissuade the Fed from acting at this point. He says the Fed could have second thoughts if an anemic report Friday is accompanied by data over the next two weeks that show a dramatic rise in initial jobless claims — a gauge of layoffs – and a plunge in service-sector hiring.

Fed officials, meanwhile, will be especially encouraged if October’s pickup in wage growth persisted into November, O’Sullivan says.

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