Transcripts

The Latest Labor Numbers May Strongly Influence Interest Rates

SUSIE GHARIB: The U.S. labor market is on a bit stronger footing than anticipated. The Labor Department said today payrolls increased by 94,000 new jobs in November, many in the service sector. The unemployment rate remained unchanged at 4.7 percent. The job market continues to be a bright spot despite significant slowing in other parts of the economy. And as Suzanne Pratt reports, today's data is likely to play a big role in the Federal Reserve policy meeting week.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: The surprising strength of the U.S. labor market eases pressure on the Federal Reserve to cut interest rates when it meets on Tuesday. Before today's highly anticipated release of the November employment report, some experts were looking for policymakers to slash the Federal funds rate by a half a percentage point. Bear Stearns economist Conrad Dequadros says moderate Fed action is now the more likely outcome.

CONRAD DEQUADROS, SR. ECONOMIST, BEAR STEARNS: I think that this tilts the decision quite significantly in the direction of a 25 basis point rate cut. This is not a report that I think suggests that the Fed needs to be aggressive.

PRATT: Nevertheless, some economists believe aggressive action is not entirely out of the question. That's because while the job market looks OK, stresses in the financial system remain.

DEQUADROS: We still have evidence of significant funding pressures which the Fed might decide is prudent to address with more accommodative monetary policy.

PRATT: Many economists believe the health of the nation's job market will continue to function as a shock absorber for the nation's economy, allowing it to withstand the housing collapse and the credit crunch. Employers have created 1.3 million jobs this year, which works out to an average of 118,000 a month. Last year, however, the economy averaged 185,000 new jobs each month. Even though job creation is clearly slowing down, experts say it's good enough to quash some of the recent pessimism about the U.S. economy. Lehman Brothers economist Ethan Harris says talk of a recession should dissipate, at least for now.

ETHAN HARRIS, CHIEF US ECONOMIST, LEHMAN BROTHERS: The jobs report is one of the most important indicators for gauging the current state of the economy. This is a healthy job report. This doesn't mean we couldn't slide into recession sometime next year, but certainly we're not close to recession today.

PRATT: Between now and Tuesday's Fed meeting, no significant economic data will be released. As a result, experts say it's unlikely that market expectations for a quarter point rate cut will change. Suzanne Pratt, NIGHTLY BUSINESS REPORT, New York.