Data on job growth, auto sales and consumer borrowing prod Fed on rates - Trade Only Today

Data on job growth, auto sales and consumer borrowing prod Fed on rates

Has the U.S. economy finally begun to demonstrate the kind of strength and durability that gives the Federal Reserve the confidence to ease its lengthy, tight grip on interest rates?
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Has the U.S. economy finally begun to demonstrate the kind of strength and durability that gives the Federal Reserve the confidence to ease its lengthy, tight grip on interest rates?

On Friday the nation’s unemployment rate dropped to 5.0 percent, the lowest it has been since April 2008, as the economy added 271,000 jobs. Additionally, average hourly earnings rose by 9 cents.

Economists were anticipating an increase of about 180,000 jobs and no change in the jobless rate, but the Labor Department’s report blew past that estimate and it was not the only significant indicator during the week that pointed toward an enduringly strengthening economy.

Earlier in the week AutoData Corp. said auto sales surged in October, not a traditionally strong month for that industry. Light-vehicle sales rose 13.6 percent, compared with the same month a year earlier, as 1.46 million cars and trucks were sold.

October was the second consecutive month that the annualized sales pace exceeded 18 million, and the Wall Street Journal said that puts the U.S. car market on track for possibly the strongest annual showing in history.

On Friday afternoon the Federal Reserve said consumer borrowing increased by $28.9 billion in September after a gain of $16 billion in August.

Bloomberg said borrowing probably also remained high in October in the wake of the strongest back-to-back months of motor vehicle sales in 15 years. Consumers have made progress in restoring household balance sheets since the Great Recession ended and are more willing to finance purchases.

Since December of 2008 the Fed has kept its benchmark interest rate between zero and 0.25 percent. The last time the central bank raised rates was in June of 2006.

Taken together, the past week’s reports on employment, auto sales and consumer borrowing significantly increased the possibility that the Fed will end the rate freeze in December.

“It was pretty much everything you could ask for in a jobs report,” Michelle Meyer, deputy head of United States economics at Bank of America Merrill Lynch, told the New York Times. “Not only was the headline number strong, but there were upward revisions for prior months, the unemployment rate fell and wage growth accelerated.

“Things could still go wrong between now and December, but the odds are better than even that the Fed will raise rates next month,” she said.

The coming week, which includes the Veterans Day holiday, has few reports scheduled. Economy watchers will have to wait until Friday to see the most significant ones — the Commerce Department’s report on retail sales for October and the preliminary University of Michigan consumer sentiment index for November.

But the Times story saw the October jobs report as being so strong that not only would the Fed need little, if any more evidence of economic strength to justify a rate increase in December, but economists also are already looking beyond a first move to the possibility of more.

“Regardless of the exact timing of the first rate hike, we still believe that the big story next year will be an unexpectedly strong pickup in wage growth and price inflation,” Paul Ashworth, chief U.S. economist at Capital Economics, told the newspaper.

He predicted that the trend “will force the Fed into a much more aggressive policy-tightening cycle than the Fed’s projections currently suggest.”

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