U.S. labor market likely to tighten further

Last week, the U.S. employment report for November posted better than expected result. The nonfarm payrolls reading have risen by 211,000. With a solid support from private sector, the employment rate increased by 197,000 over the reference month. 

On the other hand, the unemployment rate remained steady at 5.0%. The unemployment rate is expected to come below the lower end of the Fed's projected NAIRU range of 4.9%, as economic activity has increased. Average hourly earnings in the United States reduced to 2.3% in November against 2.5% in previous month. 

"We expect wage growth to continue to trend up as we expect the labour market to tighten further. The UK experience is that wage growth can be subdued for a long time and suddenly increase very quickly. As we expect wage inflation to increase this implies that underlying inflation pressure in the US is also increasing. This is the main reason we look for four hikes in 2016", says Danske Bank in a research note.