US labor reports should confirm two things about the economy

This week's (November) labor reports should confirm two things about the economy. First, though payrolls won't be high they will be high enough to keep the Fed on track for lift-off on 17Dec. Only a disaster would derail that train now and 160k isn't that. Indeed it's more than enough to keep the unemployment rate falling trend-wise from its current 5% and, eventually, to start pushing inflation northward. 

Lots of slack remains, but the Fed thinks otherwise and is anxious to get going so that it may pursue a 'slow and steady' path of rate normalization. If 2% Fed funds were to intersect a 2% (core PCE) inflation target in 2 years' time, the Yellen Fed would probably retire with as many kudos as the Bernanke Fed before it. If this 2-2-2 outcome were to be achieved without GDP growth falling below 2% as well, such kudos would be guaranteed. 

The risks at this point at housing and exports, the latter of which is the second thing this week's payrolls will confirm about the economy. The dollar has strengthened by 17% in trade-weighted terms over the past 15 months and goods exports have fallen by 10% since February. This has, since March, lowered payrolls in the goods producing industries by 65k/month compared to 2014 levels and is the reason only 160k total payrolls is expected in November when consensus looks for 200k. 

Lift-off may or may not be priced into the currency markets - Fed fund futures price in a tad fewer than 3 hikes by end-2016, but what is certain is that exports are hurting and further appreciation would only add to the pain. If exports and housing were to weaken in tandem enough to push GDP growth below 1.5% for another quarter or two, then all bets are off. The Fed would have to pause and at least contemplate reversing course and the world would look awfully dubious once again. U-turns don't get you into the Hall of Fame.