KEY DATA: ISM (NonMan.): +2.4 points; Activity: +4 points; Employment: +5.1 points/ ETI: +0.8%

IN A NUTSHELL: “It looks like the economy is accelerating.”

WHAT IT MEANS: And the beat goes on, and the beat goes on. Friday’s employment report was solid and that came on top of some very good GDP, manufacturing, consumer spending, income and confidence reports. Basically, this economy is in good shape and if the November Institute for Supply Management’s NonManufacturing index is any indicator of activity, conditions may be accelerating. The overall index rose solidly as did the business activity measure. Order growth, though a touch slower than it had, is still robust. Both import and export demand accelerated. But most impressive was the surge in hiring. Firms are adding workers like crazy and since the services segment of the economy is the leader of the pack, don’t be surprised if we get better jobs reports in the months to come.

Indeed, the strong rise in the November Conference Board’s Employment Trends Index further supports the view that the gains in payrolls we saw in November are likely to be repeated in the next few months. Growth in this measure had slowed in the middle portion of this year but it started accelerating in September and really picked up steam in November. As the Conference Board noted, “employment growth will not slow down further in the coming months”.

MARKETS AND FED POLICY IMPLICATIONS: The FOMC starts its next 2-day meeting a week from tomorrow and neither snow, nor rain nor gloom of night are likely to stay the Fed members from their appointed round of rate hikes. Of course, once a year is hardly heavy lifting, but that should change in 2017. Even job gains as strong as we are currently seeing will cause the labor market to tighten and the forward-looking indicators point to better increases ahead. Firms can continue to resist raising wages, but if they do, they will not be able to fill the growing number of job openings. And this is all happening before any fiscal stimulus has been proposed in Congress, let alone signed into law and passed through to the economy. It is a minimum of six and more likely twelve months before we start feeling any significant impact from the proposed stimulus, whatever it turns out to be. So, when you add fuel to a slowly building economic fire, the result is inevitable: Higher wage gains, higher inflation and more rapidly rising interest rates. And that raises the next question: If longer-term rates, which are already up by 100 basis points in just five months, continue to increase and start being matched by rising shorter-term rates, what happens to the equity markets? How much further can rates rise without raising concerns about the housing market and corporate profits? Rates are still extraordinarily low, even with the recent run up, and the Fed is not expected to jam on the brakes. But the chances we will get only one or two increases in 2017 are getting smaller by the economic release. I would not be surprised if a year from now, businesses, home buyers and maybe even investors will be yearning for the good old days of low interest rates. As I like to say, no good economy goes unpunished.