Cropped image of businessman passing money to colleague at table

KEY DATA: Spending: +0.3%; Income: +0.6%/ Pending Sales: +0.1%/ ADP Jobs: +216,000/ HWOL: -115,300

IN A NUTSHELL: “Consumers are spending, incomes are rising and it looks like job growth is solid, so what is there to complain about?”

WHAT IT MEANS: Fourth quarter data are starting to dribble in and they indicate the economic momentum that started in the summer has been sustained. Consumers spent decently, though not exuberantly in October. While we don’t know the details yet, it appears that spending was restrained by warm weather. Services consumption was down and utilities are part of that component. That should even out. Spending on vehicles was strong and should continue to be so. And consumers can continue to shop, shop, shop. After-tax income rose sharply, even when you adjust for inflation. Importantly, wage and salary gains are accelerating. The tight labor market is finally having an impact on worker earnings. While households are spending that money, they are saving even more of it as well. Inflation continues to rise relatively modestly and remains below the Fed’s 2% target.

On Friday we get the November jobs report and that means ADP’s closely followed private sector estimate came out today – and it was much higher than expected. The eye-opener was robust job gains at the large corporate level. This segment hadn’t really ramped up hiring as much as hoped for but lately, that has changed. If large firms are actually adding workers strongly, that bodes well for overall economic growth.

The housing market is moving forward, but the momentum is not that great. The National Association of Realtors reported that pending home sales, which are contracts, not closings, rose modestly in October. That implies existing home sales may not grow as solidly as they did in the last couple of months. Still, demand remains on the rise.

While firms may be hiring more, they seem to be advertising less. The Conference Board’s Help Wanted Online index dropped in November with every region posting a decline. Interestingly, most of the reduction in ads was for highly educated workers in areas such as computers, mathematics, health care, architecture, business and financial operations. So much for unskilled workers not being able to find jobs.

MARKETS AND FED POLICY IMPLICATIONS: Let’s wait and see what Employment Friday has in store for us, but right now, it might be a good idea to buckle up. A strong jobs report, coupled with solid wage gains could trigger all sorts of reactions in the stock and bond markets. Critically, it would cement a Fed rate hike on December 14th. Indeed, not even Janet Yellen could come up with an excuse not to increase rates if we get a decent, let alone strong, jobs report. The economy is doing just fine, thank you, and is pretty much at full employment. What people need to start thinking about is what would happen to inflation and interest rates if the massive amount of fiscal stimulus that has been proposed actually occurs. It is one thing to resurrect Keynes and turn him loose when the economy is in trouble. It is something else to do that when the economy is expanding at trend and labor markets are already tight. If your 2017 business plan assumes a timid Fed, you might just rethink that view.