Strong November jobs report shows solid economy and best of all worlds for stocks

  • November jobs growth shows a strong economy and still slow inflation, a perfect recipe for stock market gains.
  • There were 228,000 payrolls added in November, and the unemployment rate remained at a low 4.1 percent, a half percent below where it started the year. Payrolls for September and October were revised higher by a combined 3,000 jobs.
  • Average hourly wages rose just 0.2 percent, below expectations at 0.3 percent, but the 2.5 percent year-over-year wage gain is not expected to change the Fed's path to raise interest rates next week or change its course for next year.
A man dressed as Santa Claus visits the floor of the New York Stock Exchange (NYSE).
Drew Angerer | Getty Images
A man dressed as Santa Claus visits the floor of the New York Stock Exchange (NYSE).

November's solid jobs gain and modest wage growth shows a strong economy with still low inflation, a perfect recipe for stock market gains.

There were 228,000 jobs added in November, and unemployment remained at a low 4.1 percent rate. Average hourly wage growth at 0.2 percent was a slight disappointment, as economists were hoping to see 0.3 percent, or a 2.7 percent year-over-year rise and a signal that inflation would be picking up.

"This is another addition in the 'Goldilocks' scenario — slightly better jobs, no faster wages, no pressure on inflation. It's not going to change the Fed from increasing rates next week, but there's nothing so dramatic as to accelerate their time table, or at this point ease back," said Ed Keon, managing director and portfolio manager at QMA. "It just shows a robust economy and not one yet that shows inflation pressures."

Stock futures rose after the 8:30 a.m. ET report, and the market opened higher with tech leading the gains. The important monthly jobs report comes after a sloppy period for stocks, but ahead of the time of year when seasonal forces and a "Santa" rally often give the market a boost.

Meanwhile Treasury yields at the short end trended slightly lower, particularly the two-year note. That area of the yield curve is most affected by Fed rate hikes. The two-year was at 1.80 percent in morning trading.

Strong areas of hiring included professional and business services, up 44,000; manufacturing, up 31,000; health care, up 30,000; and construction up 23,000.

ZipRecruiter's chief economist, Cathy Barrera, said manufacturing may be seen as an area that needs help, but it has been doing well.

"Manufacturing is continuing to be called out for a third or fourth month in a row. That usually surprises people. It seems that actually we've seen jobs added there. ... We've added about 175,000 since last October," she said.

The lack of wage growth may be a concern for economists, but for the markets, it buys more time for a Fed that can slowly increase interest rates.

"We've seen this dance before — strong growth, no inflation. It doesn't change the Fed for December. How much the Fed goes next year is going to be dependent on whether we get inflation pressures picking up," said John Briggs, head of strategy at NatWest Markets. "The fact the economy is doing well and the unemployment rate remains low ... means you can keep them on track to gradually raise rates but there is a point where if you do not get inflation pressure, it might give them pause."

The market is now awaiting the Fed's meeting next week, where it is expected to raise interest rates by a quarter point. The central bank also issues its outlook and forecast for interest rates, the last from the Fed headed by Janet Yellen. If confirmed, Fed Governor Jerome Powell will take over as chair in February.

The Fed has forecast three rate rises for next year, and it is expected to keep its outlook about the same even though the market has been skeptical it will hike as much as it expects.

"You're starting to enter the transition from Yellen to Powell. I'm not sure this is the time you want to have a huge messaging shift from the Fed," Briggs said.