If it’s the first week of the month, all anyone on Wall Street cares about is Friday’s jobs report. So let’s start at the end of the week and work our way forward.
The Employment Situation Report, as the Bureau of Labor Statistics likes to call it, lands at 8:30 on Friday morning. Wall Street is looking for 190,000 new jobs created and a 5% unemployment rate.
It’s worth noting that the unemployment rate peaked at 10% in September 2009, and since then, the economy has added 12.5 million new jobs.
Should the jobs report roll in as expected, and there are no serious signs of an economic downturn, then you can probably expect the Federal Reserve to bump up its key fed funds rate from zero to 0.25% at its December meeting.
Just to build up the excitement for the Friday jobs report, we have the ADP employment report on Wednesday, expected to show 183,000 private-sector jobs, and the jobless claims report on Thursday. Jobless claims have hit a 42-year low.
Naturally, there are all kinds of reasons why the Fed might not raise rates, starting with the labor force itself. If we look at U6, a far broader measure of unemployment, we see that measure is down sharply, too. But it’s still at levels not seen since May 2008.
Another reason for the Fed to worry is the slowdown in the manufacturing sector — evidence of which is seen in today’s Chicago Purchasing Manager’s report. When the index is below 50, manufacturing is in recession territory. Unfortunately, the index swooned to 48.7 in November from 56.2 in October.
Much of the drop in manufacturing can be traced to the soaring dollar, which is approaching parity with the euro. Fairly soon, one dollar will buy one euro. This is great if you’re touring the continent, but lousy if you’re selling grinders to Germany. A rising dollar makes U.S. goods more expensive overseas.
A rate hike will simply keep the dollar high. Money flows to the country with the safest and highest interest rates, and the U.S. is pretty much the world champion there. The U.S. two-year Treasury note yields just 0.99%, but that’s worlds better than the German two-year bond, which yields -4.15%.
Higher interest rates won’t help the housing market, either, which is about as flat as an Ohio lawn. Pending home sales rose just 0.2% in October.
It’s hard to imagine that the Fed won’t hike rates next month, however. They have all but said they will in recent statements, and Wall Street will be terribly disappointed if the Fed doesn’t push up rates just a bit.