The November jobs report from the U.S. Bureau of Labour Statistics said 203,000 workers were added to nonfarm payrolls last month, well above the consensus Wall Street forecast of 185,000 job gains.
The strong employment numbers have Wall Street economists and strategists pulling forward their predictions for when the Federal Reserve will begin to wind down its quantitative easing program, with some saying the Fed could pull the trigger on tapering as soon as its December FOMC meeting in two weeks.
Below is a summary of their views.
Jan Hatzius, Goldman Sachs: Hatzius calls the November jobs report “strong overall,” but sticks to his call that the FOMC will wait until its March meeting to announce tapering, while noting that the 7.0% unemployment rate — the level which Fed chairman Ben Bernanke previously flagged as a spot where the central bank would likely begin winding down QE — will add further fuel to the argument that the FOMC announces tapering “sooner rather than later.” (via Bloomberg)
Steven Englander, Citi: “This is good enough for the Fed to discuss tapering in a concrete but market-friendly fashion, while reiterating and possibly emphasising their commitment to keeping rates low for a very long time. The nice thing about the NFP release is that it was nowhere near threatening enough to make the market worry that the Fed will be tempted to raise rates sooner that they indicated. With short rates anchored near zero, being short 10yr Treasuries is expensive unless your timing on the next big shock is very good. The moderately positive payroll number has put gentle tapering up as a Dec/Jan possibility but it has removed any risk of harsh tapering in market.”
Drew Matus, UBS: “We continue to anticipate a taper announcement at the January FOMC meeting. However, despite the strong report we expect an overly cautions Fed will want even more proof that job gains can be sustained. Our credit model for payrolls (which has been performing well, see chart) and our work on the labour force participation rate suggest that these gains can be sustained and that the unemployment rate is still at “risk” of falling more quickly than is anticipated by either the Fed or the market consensus. Nevertheless, we would expect the Fed to acknowledge the sustained healthy job gains in the FOMC meeting on December 18th, a shift in tone that will set the market up for the taper announcement we expect at Chairman Bernanke’s final meeting in January.”
Michael Gapen, Barclays: “We maintain our view that the Fed will taper its purchases beginning next March. The recent employment data do increase the likelihood that the Fed could taper its asset purchases in December, but we believe the committee will continue to view declines in the unemployment rate as overstating the amount of improvement in labour markets. In addition, we believe the Fed desires to see an acceleration in economic activity and some indication that inflation is returning towards its long-run goal before it begins the tapering process. On these fronts, we believe the committee will discount Q3 GDP growth on account of the substantial inventory contribution and focus on rates of growth in final demand, which has remained more subdued. In addition, with core PCE inflation at 1.1% y/y in October, some on the committee may be reluctant to begin tapering without more evidence of inflation firmness. Consequently, although the November employment report shows further cumulative improvement in labour markets since QE3 began and brings the Fed closer to tapering, we believe it will remain patient before taking the step.”
Chris Rupkey, Bank of Tokyo-Mitsubishi UFJ: “Net net, the economy is moving strongly in the right direction and momentum is starting to build. As the fiscal headwinds diminish next year, the wind will shift and push economic growth along at a faster pace. Unemployment is falling for the right reason with sustainable private business hiring of 2.4 million jobs in 2011, 2.3 million in 2012 and 2.1 million so far in 2013. What else is the Fed waiting for? The economy has reached escape velocity and could well blast off in 2014. Don’t ask when is the time to taper, the time to taper is NOW!”
Millan Mulraine, TD Securities: “This is an unambiguously positive report and it suggests that the US economic recovery is continuing to generate significant positive momentum. In many ways, this report validates the strong tone seen in the other economic reports and it will add further confidence to the Fed of a reduced need for monetary stimulus in the US economy. As such, we now see the bias shifting in favour of a January tapering announcement, especially if a budget deal is reached in time to avoid another government shutdown on January 15. However, we see a December tapering announcement as a low probability event.”
Paul Ashworth, Capital Economics: “The 203,000 increase in November’s non-farm payrolls, along with the drop in the unemployment rate to a five-year low of 7.0%, gives the Fed all the evidence it needs to begin tapering its asset purchases at the next FOMC meeting later this month. The Fed got cold feet in September, when it learned that employment growth had dipped below 100,000 in July. Over the past four months, however, the average monthly gain has been over 200,000 … given the apparent strength in the labour market, we now expect the Fed to begin its taper at the upcoming FOMC meeting.”
Andrew Wilkinson, Miller Tabak: “The driver for the FOMC is the headline unemployment rate, which we continue to predict will result in a mere $US5 billion reduction in the flow of security purchases at the December meeting. Mr. Bernanke can support that decision with evidence of what appears to be sustainable improvement in the headline reading and point to the micro statistics as reasoning to delay the onset of any increase in the fed funds rate into 2016 or beyond. When the FOMC met in mid-September and decided against the onset of tapering at the time, the three-month average pace of payroll creation was 175,000. And although the November report is not strong enough to replace the subsequently revised August reading of 238,000 which drops out of the quarterly equation today, the latest average reads 192,000 and is 17,000 above its September pace.”
Jim O’Sullivan, High Frequency Economics: O’Sullivan says the FOMC will probably wait to start tapering until the January or March meetings as opposed to the December meeting. He says the “trend in payrolls continues to be more than strong enough to keep the unemployment rate trending down.” (via Bloomberg)
We will add more commentary to this post as it comes in.
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