Last week's November employment report was solid and clears the path for a Federal Reserve (Fed) increase in interest rates at this month’s meeting. There were 178,000 jobs added in November versus an expectation of 180,000. Revisions to prior reports were a modest 2,000 jobs, and the unemployment rate has dropped by 0.3% to 4.6%. The weakest component of the report was a 0.1% decline in average hourly earnings for the month, versus an expectation of a 0.2% increase. I expect the decline in average hourly earnings to be temporary as wage pressures should build as labor slack continues to decline.
There are a few things to keep in mind throughout the week. The winds of populist change continued this weekend with the defeat of Italian Prime Minister Matteo Renzi’s referendums for constitutional change. The defeat caused him to resign and not remain in office to stabilize the Italian government. The rules of the economic and political road continue to change, and the playbook of how economies and markets will perform will not act like it has over the last 30 years. This can also be seen in the changing U.S. policy with China and the potential for the use of tariffs to alter economic behavior.
The European Central Bank (ECB) meets this week and will most likely add additional stimulus. Look for commentary around the amount of stimulus to expect going forward as uncertainty in Europe remains high.
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