US Economic Update – 08 December 2014

US economic growth gaining momentum while capacity is drawn down fast; equity markets continue to advance

US equity markets continued their advance unabated last week and at the open on Monday, supported by a wave of better North American economic data, which drove the Dow Jones to within a hair whisker of the 18,000 level for the first time in the index’s history.

While there were other triumphs to be reported, such as Monday’s ISM Manufacturing PMI, US Non-farm Payrolls were the real headline grabber for the week with a showstopping set of numbers late on Friday afternoon.

In detail, the payrolls report trumped all forecasts with an absolute knock-out 321K new jobs estimated to have been added to the economy during November, while numbers for September payrolls were also revised higher to 243K from 214K.

In addition to strong payrolls growth the unemployment rate also held steady at 5.8%, indicating that the pace at which workers are losing jobs and/or leaving the workforce slowed during the period.

In a further boost to economy watchers in the US, average hourly earnings also trumped all forecasts with a month on month increase of 0.4% as opposed to the projected 0.2%.

All in all, incoming data continues to suggest that the US economy is gaining traction and that spare capacity in the labour market is being drawn down at an increasingly more rapid rate. In more recent months this tightening has begun to feed through into both average earnings and inflation figures.

The net effect of this is that the Federal Reserve is now expected to raise interest rates ahead of the Bank of England before embarking on a much more rapid and steeper tightening cycle, with rates projected to reach 1.5% by the close of 2015.

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