What the bond markets are saying is that unexpectedly strong performance in the economy during the financial and housing crises is reducing expectations for further interest-rate cuts from the Federal Reserve.

This sentiment is echoed in the recent rally in the dollar against the euro. (The greenback has rallied above-parity against the loonie after Canadian officials cut interest rates the other day. The dollar’s recent strength against the yen reflects increased risk-tolerance in carry trades, which is positive but volatile from day-to-day.)

As we have come to expect, the BLS statistics show that jobs continue to be lost at very high rates in the goods-producing, manufacturing and construction sectors. The job growth in services, retail, education and government more than made up for these losses.

To an ever-increasing degree, Americans no longer make or build things. Instead, they perform services for each other and work for the government.

There is one element in the Labor report that may be taken with a wary eye: wages growth was strong in November. The Federal Reserve spends a great deal of its time worrying about inflation. Any significant amount of inflation in the economy basically eliminates lower interest rates as a policy tool.

This matters because a great deal of the recent optimism in the stock markets is predicated on further cuts in rates by the Fed. In the Fed’s view of the world, food and energy-price inflation don’t really matter all that much.

What they care a very great deal about, however, (in addition to “core” consumer prices) is wages. Because if wages grow, businesses may find that they are able to pass higher labor costs along to consumers in the form of higher prices. That’s the kind of inflation that can get out of control.

Other recent reports show that consumer confidence is at cyclical lows. This measurement is important because it’s theoretically a leading indicator of future spending, even though it probably measures news-bias more than anything else. And obviously the news bias has been overwhelmingly negative for the economy.

If consumers are facing distress from the strong drop in the value of their homes which continues uninterrupted, they’re not showing any signs of it. As mbecker and others have pointed out (and as my own private conversations indicate), a lot more shoes will drop as adjustable Alt-A mortgages start to reset over the next year and beyond.

I’m not inclined to the prevailing view that housing weakness will badly hurt consumer spending. We have yet to see any evidence of that. It may just be too early to tell, and perhaps the holiday retail season is masking the effect.

I continue to see daily evidence of exceptionally strong growth in the global economy outside of the US and Europe. To repeat what I’ve said in prior posts, I strongly expect that export growth will lead the US economy for years to come.