Market Insider

Jobs growth solid enough for Fed to taper, but not now

Parsing November jobs report
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Parsing November jobs report

The 203,000 jobs added in November confirmed that the employment picture is improving, but probably not enough to push the Fed to remove stimulus before next year.

Stock futures immediately shot higher, and bond yields on the long end continued to firm. The 10-year yield rose as high as 2.9 percent. The Dow notched triple-digit gains. The unemployment rate also fell to 7 percent from 7.3 percent.

Key to the market was that the number did not increase the chances the Fed would start to taper back its bond buying in December, as feared.

"It's as good a jobs report as one could expect—strong gains in employment, sharp decline in unemployment, increase in hours worked. It was unambiguously strong," said Mark Zandi, chief economist at Moody's Analytics.

Traders on the floor of the New York Stock Exchange.
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"I think the Fed waits 'til March for several reasons. One, they want to make sure this is a trend and not a temporary increase in growth, and the reason the Fed will be nervous about that is because GDP is tracking below 2 percent for the fourth quarter," said Zandi. "I think they want to wait to see how the budget battles go in Washington, make sure lawmakers do not damage the economy. Inflation is very low ... so they have room to wait."

(Read more: Fed's Plosser: We need to begin to get rid of QE)

CRT Capital chief Treasury strategist David Ader said the report will not change the market view, with most traders expecting a first-quarter move by the Fed to trim its $85-billion-a-month quantitative easing program.

"Tapering is coming—December, January, February, March," he said. "This wasn't enough to change peoples' prospects."

Inside the jobs report, economists found a number of positives. For instance, there was a 0.2 percent gain in average hourly earnings, up 2 percent year over year. The average work week rose to 34.5 from 34.4 hours.

There was also a surprise in the number of manufacturing jobs, which were up 27,000, almost triple expectations.

Ahead of the report traders were discussing whisper numbers well above 200,000, and that has been weighing on stocks and sending bond yields higher this week on speculation a strong number would speed up the timetable on the Fed's wind-down of its quantitative easing program.

A better report would have raised the odds that the Fed would decide to taper its bond buying program when it meets in December, Fed watchers say. But they still mostly believe tapering of the $85 billion monthly program in January or March is more likely.

CRT Capital surveyed bond market participants Thursday and found a very low 11 percent expect a December Fed tapering, but the odds would have been greater if the jobs number had been at least 258,000. In that event, they expected 10-year notes to sell off, and yields move toward a 3 percent target. Stocks were seen losing about 2 to 3 percent.

—By CNBC's Patti Domm. Follow here on Twitter @pattidomm.