The Jobs Report scored big Friday, reporting 321,000 new jobs for November and a strong monthly wage increase. Unfortunately, the outlook for GDP growth indicates this robust level of jobs growth is not likely to continue for long.
Over the last two quarters, the economy grew at a 4.2 percent clip, about double the pace for the first five years of the recovery, and jobs growth averaged 260,000 per month, well above the 185,000 for the prior 12 months.
Unlike stronger expansions in the past, consumer spending and housing have not recovered as much. The past two quarters, business investment and exports have contributed importantly to growth but those are expected to abate. For example, whereas lower gas prices boosted auto sales, new orders for new oil and gas field equipment are falling, and weak conditions in Europe and a stronger dollar will constrain foreign sales of U.S. products going forward.
The consensus forecast for the fourth quarter and first quarter of 2015 are 2.7 and 2.8 percent, and my forecasts are 2.6 and 3.0 percent.
| Quarterly Forecasts (percent) | ||||||||||
| Q414 | Q115 | Q215 | Q315 | Q415 | Q116 | 2014 | 2015 | 2016 | ||
| GDP: Annual | 2.6 | 3.0 | 2.8 | 2.8 | 2.8 | 2.8 | 2.3 | 3.0 | 2.8 | |
| GDP: Q4/Q4 | 2.2 | 2.9 | 2.8 | |||||||
| CPI: Year/Year | 1.5 | 1.4 | 1.1 | 1.4 | 2.0 | 2.1 | 1.7 | 1.5 | 2.1 | |
| Core CPI: Y/Y | 1.8 | 1.8 | 1.6 | 1.7 | 1.7 | 1.7 | 1.8 | 1.7 | 1.7 | |
| Unemployment | 5.8 | 5.7 | 5.7 | 5.6 | 5.6 | 5.5 | 6.0 | 5.7 | 5.5 | |
| Federal Funds | 0.125 | 0.125 | 0.25 | 0.75 | 1.25 | 1.75 | ||||
| Case Shiller Home Prices Index | 7.7 | 2.8 | 3.7 | |||||||
| Housing Starts (millions) | 0.99 | 1.11 | 1.24 | |||||||
That should support jobs growth in the range of 225,000 per month—hardly enough to cause wages to push up inflation.
Although wages were up a robust 0.4 percent last month, on a year over year those have advanced only 2.1 percent—that was better than inflation but not by a lot.
Falling gas prices have kept a lid on consumer prices but even subtracting the volatile energy and food sectors, inflation has been subdued.
Over the next two weeks, the Labor Department will report wholesale prices (the producer price index) and consumer prices. The consensus forecasts indicates continued price restraint, and the Institute for Supply Chain management survey for manufacturing and services indicate businesses are generally not feeling a lot of pressure on prices for goods purchased.
Overall, the labor market conditions and inflation should not push the Federal Reserve to increase interest rates before next year. Moreover, slower GDP growth should pull jobs growth down well below the 300,000 level within a few months, instigating Chairwoman Yellen to argue for caution.
My forecasts still points to the Fed raising the overnight lending rate, but not before June or July.
Forecasts for the Weeks of December 8 and 15
| Forecast | Prior Observation | Consensus | |
| Week of December 8 | |||
| December 9 | |||
| JOLTS - October | 4.795M | 4.735 | 4.795 |
| Wholesale Inventories - October | 0.2% | 0.3 | 0.2 |
| December 10 | |||
| Treasury Budget - November | -$70.0B | -121.7 | -63.0 |
| December 11 | |||
| Initial Unemployment Claims | 295K | 297 | 295 |
| Retail Sales - November | 0.2% | 0.3 | 0.4 |
| Retail Sales, ex Autos | 0.1 | 0.3 | 0.1 |
| Export Prices -November | -0.3% | -1.0 | -0.2 |
| Import Prices | -1.8 | -1.3 | -1.7 |
| Business Inventories - October | 0.2% | 0.3 | 0.3 |
| December 12 | |||
| Producer Price Index - November | 0.0% | 0.2 | -0.1 |
| PPI Core | 0.1 | 0.1 | 0.1 |
| Michigan Consumer Sentiment - Dec (p) | 89.3 | 88.8 | 89.5 |
| Week of December 15 | |||
| December 15 | |||
| NY Fed Manufacturing Index | 12.0 | 10.16 | 12.0 |
| Industrial Production - November | 0.5% | -0.1 | 0.5 |
| Capacity Utilization | 79.2 | 78.9 | 79.3 |
| NAHB Index | 57 | 58 | 57 |
| December 16 | |||
| Housing Starts - November | 1.005M | 1.009 | 1.026 |
| Building Permits | 1.015 | 1.092 | 1.046 |
| December 17 | |||
| Consumer Price Index - November | -0.1% | 0.0 | -0.1 |
| Core CPI | 0.1 | 0.2 | 0.1 |
| Current Account - Q3 | -$94.8 | -98.5 | -94.1 |
| December 18 | |||
| Philadelphia Fed Survey | 22.0 | 40.8 | |
| Leading Indicators - Nobember | 0.4% | 0.9 |
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