November Job Growth Green Lights First Rate Hike in a Decade

Employers hired at a brisk pace in November, providing the data-driven Federal Open Market Committee (FOMC) with the last piece of information necessary for a lift off in the federal funds rate. Job growth surpassed expectations for the second consecutive month, easing fears that weakness in China and Europe is dragging down the world’s largest economy. Additionally, FOMC members have been signaling a reversal in monetary policy during recent speeches.

Payrolls expanded by 211,000 positions in November, buoyed by additions across several sectors. Blue-collar sectors construction and leisure and hospitality contributed 85,000 jobs to staffing levels. Meanwhile, the high-paying professional and business services, and education and health services sectors collectively added 67,000 jobs last month. Weak oil prices instigated a loss of 11,000 jobs in the mining in logging sector. Overall, the employment market was issued a clean bill of health last month.

November JobsFutures traders are forecasting a 79 percent chance of an increase in the federal funds rate when the FOMC meets mid-month. No major economic data points are scheduled for release between the November jobs report and the next meeting, providing observers a strong picture of what the committee is digesting. Furthermore, speeches from members of the FOMC have been sending a clear signal to the market that rates would rise, absent of weak economic news. As a result, the federal funds target rate is projected to increase to between 0.25 and 0.5 percent before year-end.

The impact of rising rates on single-family investments will be muddled in the near term. The average 30-year mortgage rate has climbed nearly 20 basis points since the end of October, indicative of a lending environment that has already priced-in some of the rise in rates. While financing investment properties will become more expensive, purchases are also expected to become more challenging. Therefore, the homeownership rate will continue to retreat, supporting higher rents and lower vacancy at rental homes.

Sources: HomeUnion Research Services, Bureau of Labor Statistics, Freddie Mac, U.S. Census

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