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Normal On The Horizon

The economy is gaining strength. It is not yet normal, because a world of zero interest rates is not normal, but at least normal is somewhere on the horizon.

That is the major takeaway from the November jobs report, released last week by the Bureau of Labor Statistics. A broad surge in hiring reached across sectors, from factories to offices, and increased overall employment by 321,000 jobs, exceeding even optimistic projections, according to Bloomberg. The unemployment rate held steady at 5.8 percent, which is a six-year low. Average hourly earnings climbed 0.4 percent, which is the largest monthly gain since June 2013. The average number of hours an employee worked per week is up too.

Nariman Behravesh, chief economist for HIS Inc., explained to Bloomberg that the cycle of job growth and improved spending is an overall positive for the big economic picture. “You’ve got this really nice dynamic going on in that there’s more jobs growth, more spending, stronger GDP growth, which in turn means more jobs being created,” he said.

More succinctly, PNC economist Stuart Hoffman told Forbes, “If you don’t like this one nothing is going to make you happy.”

While we haven’t gotten back to normal yet, this report is strong evidence for optimism that we will get there sooner than later. An accelerating pace of hiring coupled with rising wages and an unemployment rate that is falling, or at least steady as more people enter the workforce, will be all the justification the Federal Reserve needs to begin allowing interest rates to start a slow climb toward reasonable levels.

That doesn’t meant that this Fed, which under the leadership of Janet Yellen is particularly gun-shy about acting too soon, will in fact take its thumb off the interest rate scales as soon as it should. The Fed is apt to be particularly concerned by continuing weakness in Europe and China, and by the recent slide in oil prices if it is not reversed soon. These factors could contribute to lingering hesitation to act.

Yet the widely predicted mid-2015 target for raising rates still seems correct to many analysts, especially given this month’s solid employment news. More likely than not, by this time next year, savers who put their cash in money market funds or short-term bank deposits might actually get a little something back for their troubles.

Partisans on both sides of the U.S. political divide will credit themselves for this recent improvement. Democrats will claim the strengthening economy as proof that the Obama administration has been right all along about the need to add trillions to the national debt in order to put Americans back to work. Republicans will say that it was the return of a GOP majority in the House of Representatives in 2011 that finally put the brakes on Obama’s spending spree, and that the recovery could have come even faster but for the administration’s regulatory overreach, especially in the banking sector. I personally fall into the latter camp.

But regardless of who is right, the underlying truth is that the United States economy, still the world’s largest, is now picking up speed. That is ultimately a good sign for workers and investors everywhere.

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