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Jobs Report Keeps Fed Debate A "Work In Progress"

The slightly better-than-expected increase in November non-farm jobs gave some support to stock prices, but has done little to change the debate about what the Fed will do when it meets on Tuesday.

The Street has been in hot debate about whether the Fed will trim the target 4.50 percent Fed funds rate target by a quarter or a half point. Non-farm payrolls increased by 94,000 in November and the unemployment rate held steady at 4.7 percent. Dow Jones had pegged the Wall Street consensus at 85,0000, while Reuters had a forecast of 90,000. October's 166,000 non-farm payrolls were surprisingly revised even higher, to 170,000. It was expected October's number would be revised downward.

"I don't think it's definitive," said CNBC senior economic correspondent Steve Liesman. "There's going to be some guys out there who are going to say: 'Hey because of the credit crunch out there, the Fed has to respond aggressively.' Others are going to say, 'the economy is not that bad, let's take it slow and cut just a quarter.'"

"I still think it's a close call here between 25 and 50 (basis points)," said Liesman.

The jobs data is the final piece of the economic puzzle the Fed will review before its meeting Tuesday and for that reason, it's been the topic of intense focus on Wall Street. On Wednesday, ADP issued its jobs report, considered a preview of the government data though not always an accurate reflection. The ADP number for November came in at a surprising 189,000 new private sector jobs.

It's clear the subprime tsunami left its mark on the jobs picture. The biggest areas of loss in November were the construction industry, down 24,000 jobs, and also the finance sector, down 20,000. The largest areas for new job growth were government jobs, up 30,000 and professional business, up 30,000. Retail added 24,000 and the leisure industry added 26,000.

Stocks were initially higher out of the gate this morning but showed a rather tepid response to the data. Treasuries moved just slightly. The Fed funds future continue to show expectations for a quarter point rate cut. The futures show traders believe there is a 30 percent chance that there will be a second quarter point trimmed by the Fed Tuesday, taking the Fed funds rate to 4 percent.

"The Treasuries are more focused on the credit markets in general," said CNBC's Rick Santelli. "It's a rather middle-of-the-road jobs report, particularly after ADP sucked most of the energy out of the market. It did steepen the curve a little. Long-end rates moved up a bit on the increase in hourly earrings."

Month-to-month hourly earnings increased 0.5 percent. "The economy is a lot more resilient and it's doing pretty well outside of housing," said Santelli.

Along Wall Street
Investor Joe Lewis is adding to his stake in Bear Stearns. He disclosed in an SEC filing that he increased his holdings to 9.25 million shares, or 8 percent of Bear's outstanding from 6.97 percent.

Merrill Lynch cut American Express, Capital One and Discover to sell from neutral. Stifel Nicolaus cut its rating on American Express to hold from buy and lowered estimates due to expectations of significantly higher credit costs in 2008. Avon Products was upgraded to buy at Merrill.

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At Cowen, retail analyst Lauren Cooks Levitan said November sales at specialty retailers, reported yesterday, did not change her view for a modest increase expected in holiday sales. She also sees shoppers holding off until later in December to take advantage of markdowns.

Debate Rages
The Administration plan to help some suprime mortgage holders stave off foreclosure continues to be the focus of debate. Treasury Secretary Hank Paulson appears on "Street Signs" today with CNBC's Erin Burnett.

Questions? Comments? marketinsider@cnbc.com

  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.