Economic data in November were supportive of the Fed's desire to raise interest rates.
Consumer inflation rose at the fastest rate in 6 months, according to the latest Consumer Price Index (CPI) reading. The Labor Department reported that the index rose +0.4% last month, after rising +0.3% in September.
On an annualized basis, the CPI is up +1.6% - the biggest year-over-year increase since October of 2014. The increase was in line with economists' forecasts. Core inflation, which strips out potentially volatile food and energy costs, climbed +0.1% last month. Annualized, core inflation is currently 2.1% - right in line with the Federal Reserve's 2% inflation target. The firming inflation along with the labor market approaching full capacity leads many analysts to believe that the Federal Reserve will have the green light to raise interest rates at its December 13-14 policy meeting.
The U.S. jobless rate hit a 9-year low of 4.6% last month, falling much more than expected as the economy added 178,000 new jobs last month. Gus Faucher, economist at PNC Financial Services Group said "
he economy is close to full employment, and the Fed wants to start gradually raising interest rates before the economy reaches full employment and wage pressures accelerate too much and spark much higher inflation.
However, behind the headline number was the fact the unemployment rate dropped because the civilian labor force shrunk by 226,000, as more people dropped out of the workforce. Many analysts prefer a broader measure of unemployment, known as the U6 rate. That rate fell to 9.3% from 9.5%. This measure includes part time workers looking for a full-time position, and job seekers who have recently given up looking for work.
According to the Commerce Department,
the U.S. economy grew at the fastest pace in over two years in the third quarter
as both consumers and government increased their spending and exports surged. The
U.S. Gross Domestic Product grew at a +3.2%
annual rate in its second reading. The reading was the strongest since the second
quarter of 2014 and beat economists' estimates of +3.1%.
Supporting the strong reading was an increase in consumer spending, which accounts for about two-thirds of the economy. Spending rose +2.8% - stronger than the original +2.1% estimate. In addition, business investments in structures like offices and factory buildings surged +10.1%, almost double the original +5.4% estimate.
Corporate profits were also strong, rising +6.6% and after-tax profits surged +7.6% (following a -13.3% plunge over the previous year and a half). (This is one of the critical data-points we are looking for to support rising stock prices, and it delivered in spades!) Exports of goods are the strongest in three years, while imports were down slightly from the previous quarter.
As the month of November ended, OPEC announced a coordinated global cut in production, leading to whopping 12% increase in crude oil prices. Volatility is back!
At the same time, consumer confidence figures were released and showed a sharp spike upwards, surging to 107.1 in November from 100.8 in October. Better still, confidence is back at pre-recession levels, and the Present Situation Index increased from 123.1 to 130.3. The Expectations Index also increased from 86.0 to 91.7. (And these figures were pre-election!)