Today's jobs report signals that the Fed will embark on its first rate increase in nearly a decade later this month.
All key indicators are pointing in the right direction, including an uptick in labor force participation and wages.
This was mostly as predicted. But after a year of ups and downs in the labor market, it was better today to have a yawn than a panic attack.
Though the Fed is likely going to raise rates, it has been communicating that this is not the beginning of a tightening cycle, but rather a movement to less extraordinary expansion. As Janet Yellen said in her testimony to the Joint Economic Committee this week, lift off will be "a testament...to how far our economy has come in recovering from the effects of the financial crisis and the Great Recession," but there is still room for continued improvement in the labor market.
The expected slow pace of hikes in 2016 is going to be different from past cycles, and this approach is to guard against cooling a relatively slow growth economy too quickly. Of course, the Fed will still be watching the data to decide how much to move, which means jobs day will continue to be important as we go into 2016.
At Indeed, the jobs Web site where I am chief economist, we'll be watching movement in a couple of key industries to see if the economy is running hot or cool, specifically construction and manufacturing.
It was heartening to see in this report that there was growth in construction, and that manufacturing held steady. These are not only bellwethers for overall economic growth, but both are sensitive to higher interest rates.
In the long run, there are still headwinds in terms of getting to stronger economic growth. For that, we need to see even greater labor force participation and wage growth.
Given low inflation the wage gains we've seen in the past two months are real, which is good for workers. However, we expect stronger wage gains in the future since we are operating in a tight labor market where employers will need to work harder to bring in and keep workers.
Job postings on Indeed's search engine is ending the year on a blockbuster note, indicating employer demand is very high and looks to continue into 2016.
As the labor market tightens it is harder for employers to attract interest from job seekers for these positions. Much of the success of the labor market in 2016 will hinge on whether employers can make these jobs appealing.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.