Unemployment holds steady

Analysts sorted through a mixed bag of economic data this week, trying to get a read on what action—if any—the Federal Reserve Board will take when it meets next week. Optimists found a benign jobs report, increased factory orders, and productivity gains. Pessimists could point to a deceleration in the manufacturing and service segments of the economy. For the week, the S&P 500 Index rose 1.5% to 1,505 (for a year-to-date total return of 6.4%). The yield of the 10-year U.S. Treasury note rose 20 basis points to 4.12%.

Jobless rate held steady

The unemployment rate remained unchanged at 4.7% in November, and the economy added 94,000 new jobs. Both numbers were slightly more positive than consensus expectations. Job growth was strongest in professional and technical services, health care, and food services, while manufacturing and several home-related and financing categories suffered decreases. Average hourly wages increased 0.5%, to $17.63.

Manufacturing and service sectors cooled

Activity in the manufacturing sector expanded in November, but at the slowest pace since January, according to the Institute for Supply Management (ISM). The ISM Index fell slightly, to 50.8, and has decreased each month since a June high point of 56. Readings over 50 indicate that the manufacturing sector is still growing. The report showed strength in new orders and production but also reflected rising prices and a falloff in employment.

In a separate release, the ISM reported that growth in the service portion of the economy also decelerated in November. The ISM non-manufacturing index declined 1.7 points in November, to 54.1, more than 2 points below the average during the past year. New orders and employment grew at a slower rate, while prices rose. Ten industries reported growth in November including information; retail trade; and real estate, rental, and leasing.

Productivity increased, wage pressure eased

Third-quarter productivity rose 6.3% in the nonfarm segment of the economy. This increase from the preliminary estimate reported last month was the largest gain in productivity since 2003. The upward revision to productivity—coupled with a downward revision of hourly compensation—lowered unit labor costs by 2.0%. This was viewed as good news by inflation watchers.

Factory orders ticked upward

Orders for factory goods rose a greater-than-expected 0.5% in October, following a 0.3% rise in September. Strength in the nondurable goods category (particularly among chemical and petroleum products) offset weakness in durable goods. A "core" reading of business investment in capital goods (filtering out spending on aircraft and military goods) declined 2.0%.

Credit card usage grew in October

Consumer credit increased at an annual rate of 2.3% in October, following a 1.6% rise in September. The increase was driven by an 8.3% jump in revolving credit (such as credit cards). Nonrevolving credit declined 1.3%, reflecting softer demand for automobiles.

The economic week ahead

Will the Federal Reserve Board lower short-term interest rates, and if so, by how much? Investors and analysts will find out on Tuesday when the Fed's Open Market Committee is scheduled to vote on a potential rate action. Two important measures of inflation will also be reported on next week: Thursday's Producer Price Index, which tracks inflation at the wholesale level, and Friday's Consumer Price Index, which tracks inflation at the consumer level. Other economic news slated for next week include reports on the U.S. trade balance (Wednesday), retail sales (Thursday), business inventories (Thursday), and industrial production (Friday).