INDICATOR:  November Employment Report

KEY DATA:  Payrolls: +321,000; Revisions: +44,000; Private Sector: +314,000; Average Hourly Earnings: +0.4%; Unemployment Rate: 5.8% (Unchanged)

IN A NUTSHELL:  "It seems that every time we get labor market numbers, we get more indications that the market is tightening."

WHAT IT MEANS:  The jobs report is the first big one of the month and this was a really big one.  The economy may not yet be a big mean jobs machine but it is just about there.  November job gains were way above expectations and there were solid upward revisions to the previous two months numbers.  For the past three months, an average of nearly 280,000 new positions have been added and that can simply be described as very strong.  The increases were across the board as nearly 70% of the industries posted gains.  You have to search far and wide to find any major drop in employment.  There were strong gains in construction, manufacturing, retail trade, financial activities, transportation, professional services and restaurants.  Even the government chipped in despite a cut back in education.  In other words, everybody seems to be on the hiring bandwagon.

The key, though, is wages and while they rose more than they had been.  That is really good news.  Meanwhile, the unemployment rate was unchanged.  The labor force did rise, so that is an indication the strengthening market is pulling back in more people.

MARKETS AND FED POLICY IMPLICATIONS: This was a great report but don't expect gains to continue at the 300,000 level.  The economy has not yet reached a growth rate that would support it.  But increases between 250,000 and 300,000 are likely and that would lead to further declines in the unemployment rate.  I expect the full employment rate, which is roughly 5.5%, to be reached in the spring but labor shortages should be showing up sooner.  The November wage increase is a warning that labor market conditions are already starting to turn.  The Fed will not react to a one-month solid rise but if we see additional solid gains, then the tone of the statement will change.  I suspect the Fed will be talking about a tightening labor market at its next meeting, which is in ten days.  As for investors, the yin and the yang is the strong economy vs. the potential that the Fed could raise rates sooner than others think.  But that has been overhanging decisions for a while; it's just that few have been discussing it.

--