Specialist Mario Picone adjusts his Dow 18,000 cap as he works on the floor of the New York Stock Exchange, Dec. 5, 2014. The main focus in the markets on Friday was the monthly U.S. jobs survey from the Labor Department, which showed U.S. employers added 321,000 jobs last month, the biggest burst of hiring in nearly three years.Richard Drew/The Associated Press
Now the Federal Reserve may have to tear up its carefully laid plans. The last U.S. jobs report of 2014 showed a surge, with a blowout 321,000 new positions created in November. The longer-term trends in hiring and wages are improving, too. Weaker oil may also provide a boost. If the pace picks up, the central bank could end up playing catch-up.
Last month's jobs report was easily the most promising since early 2012. Although the unemployment rate didn't budge from October's 5.8 per cent, the past six months have seen the strongest half year of job creation since 2000. Hourly earnings are increasing noticeably, too, up 2.1 per cent year-over-year. Even construction, the sector hit hardest in the recent recession, seems to be on the mend, adding 213,000 jobs over the past 12 months.
This bigger picture suggest the U.S. economy is strengthening beyond one month's surprisingly good data. Consumer spending has been a big missing piece of the recovery and, if employment continues on a robust upward trend, that could change. Moreover, oil prices have fallen dramatically in recent months, cutting the country's gasoline prices to just $2.74 (U.S.) per gallon. That's nearly a dollar cheaper than in early summer. Lower fuel costs help most companies as well as consumers.
Fed chair Janet Yellen and others at the Fed would of course welcome a stronger recovery than the 2.6 per cent to 3 per cent central range in the bank's forecasts for GDP growth in 2015. But it could upset the notion that monetary policy will follow an orderly path with a gradual liftoff in short-term interest rates from their near-zero level starting in the middle of next year.
How markets will react even to this well-flagged process is unpredictable. But rapid economic expansion, a tumbling unemployment rate or a sharp upturn in inflation could all knock the Fed off course and force an earlier or more dramatic shift in policy than some of its rate-setting committee's leading lights might want. That could bring greater market volatility – or at least a tougher job for Ms. Yellen maintaining the recent fairly solid consensus among her colleagues.