KEY DATA: ADP: +217,000/ HWOL: +232,000/ Productivity: 2.2%; Compensation: 4%

IN A NUTSHELL: “If Friday’s job gains come in anywhere near what ADP thinks they will, then a December rate hike becomes a slam dunk.”

WHAT IT MEANS: With more and more Fed members sending strong signals that a rate increase in December is likely, the only things that could prevent that from happening are either a major crisis or disastrous data. The biggest release left is the November employment report that comes out on Friday and it looks like it could be quite good. ADP estimated that private sector hiring accelerated last month and for the first time in a while, the gains were spread across all industries and firm sizes. Small and midsized companies are no longer shouldering the hiring burden as even large firms added workers at a solid pace. Renewed hiring in the manufacturing sector and strong gains in business and finance indicate that a broader expansion is under way. ADP’s estimates don’t exactly match the government’s private sector numbers, so don’t be surprised if Friday’s employment increase is lower.

Adding to the belief that the labor market is strong and getting stronger was the large rise in online want ads in November. This was the second consecutive strong gain for the Conference Board’s measure and points to a potential break out in hiring. Firms had been cautious for about six months but that has changed. They are once again aggressively looking for workers in all regions and occupations.

Third quarter productivity was revised upward, as expected, given the large upward revision to third quarter GDP growth. But what jumps out in this report is the huge increase in hourly compensation. Instead of a 3% rise, it is not put at a 4% annualized gain. It looks like hourly compensation will rise by over 3% this year, the biggest gain since 2007. When adjusted for inflation, the increase should be over 2%, which would be the fastest rise since 2000. The tight labor market is already causing wages to rise faster and that trend will only accelerate next year when the unemployment rate dips below full employment.

MARKETS AND FED POLICY IMPLICATIONS: All signs are pointing to a Fed rate hike two weeks from today. Any payroll increase above 150,000 should seal the deal and a number above 200,000 might even get them hiking early – just kidding. This is a Fed that has been dragged kicking and screaming to the conclusion that the economy can absorb not just one rate hike but a series of increases. The discussion should finally turn to what constitutes a slow series of increases? I have argued that every other meeting is cautious enough. Once the huge energy price declines come out of the inflation indices, and that will start happening early next year, the top line number should go back above 2% and start approaching 2.5%. The unemployment rate will fall below 5%, if not in November then most likely in December. By June, it could be closing in on 4.5% – a rate that only the nattering nabobs of negativity will argue is not below full employment. At that point, labor compensation costs could be rising fast, not just faster, and that should lead to accelerating inflation excluding or including food and energy. By next fall, the markets could be calling for an increase at each meeting. That has been my forecast for a while and I am sticking to it – at least until next fall.