It’s that time of year when we tend to take stock of the past year. It was an interesting (to say the least) one for me, but I’m going to focus on things economic.

The U.S. economy made significant forward strides in 2015. With the addition of some 211,000 jobs in November, total nonfarm employment reached 142.9 million. So far this year, employment has grown by 2.3 million jobs from the 140.6 million jobs in December 2014, below the pace of job growth from last year but still an improvement over other post-recession years.

Job growth had been concentrated in various private services sectors. Specifically, the education and health services sector has added 584,000 jobs this year, with close to 433,000 new net jobs in health care alone. This phenomenon is likely to continue. Even with all of the hoopla about cost and access, the industry continues to expand dramatically. There are many complex reasons, most notably the simple fact that a lot of folks are getting older. The professional and business services sectors similarly performed extremely well, adding 534,000 jobs to the economy. The leisure and hospitality sector has also been a major player, adding 382,000 jobs, most (83.5 percent) of which were connected to food services and drinking places.

The manufacturing, information, and government sectors have remained mostly unchanged, while the construction and financial activities sectors have seen modest gains. The mining and logging (interesting combination) sector performed the worst due to the significant decline in oil prices that has characterized this year. Since the end of last year, the sector has lost 124,000 jobs.

The unemployment rate has continued to fall this year from 5.8 percent in January to 5.0 percent in November. The number of discouraged workers (in the technical sense of having dropped out of the active search for work) has decreased as well, from 698,000 to 594,000 from November 2014 to November 2015. Over the past year, there has also been improvement in the number of underemployed in the U.S. For example, the number of workers employed part-time for economic reasons, such as only being able to find part-time work decreased from 6.85 million to 6.09 million, though that number increased from the October level of only 5.77 million.

All of these indicators show that the labor market is continuing to steadily improve since the 2008 economic recession. It is this improvement that fueled speculation throughout the entire year over when the Federal Reserve will raise interest rates. The Fed had been clear about their intentions of beginning to raise the target interest rate once the labor market has shown further improvement and the inflation rate approaches the two percent target. While the labor market has been behaving as expected, the inflation rate has been lagging behind, causing the Fed to extend their interest rate decision on a meeting-by-meeting basis through the fall (remember that the first big proclamation a few years ago was that rates would be raised when the unemployment rate dropped below 6.5 percent; obviously, the wait was much longer).

After putting off the decision to raise interest rates for most of the year, the Fed announced this month that rates would be increased for the first time since June 2006. The Federal Open Market Committee voted unanimously to raise the new target range for the federal funds rate from zero to 0.25 percent to 0.25 to 0.5 percent. The Committee also gave indications that further quarter-point increases would occur in 2016. This move reflects the Fed’s confidence that the economy will continue to expand given these gradual adjustments. These changes are also being made with the expectation that inflation will approach its target in 2016.

The increases in the short-term federal funds rate will have an indirect impact on the rates for consumer borrowing such as mortgage lending (although not much in that case). The rise in interest rates increases the cost of borrowing, which banks typically pass on to their customers. When the Fed raises the interest rates paid to depository institutions on excess reserve balances, banks have more incentive to hold balances rather than loan money out and will tend to charge higher rates to borrowers, thereby reducing liquidity. These actions will typically raise the cost of borrowing, which will tend to reduce consumer spending and business investment.

With the smaller increases in the federal funds rate, the impact on the long-term mortgage rates should be smaller as well. Furthermore, a change in the federal funds rate is not the only factor impacting mortgage rates. Other important factors affecting the long-term rate are the overall health of the economy and inflationary expectations.  Overall, it is reasonable to expect that there will only be a small increase in mortgage rates, which is not likely to damage the housing recovery.

The past year has brought with it the end of the oil surge, improvement in the labor market and employment recovery, and the beginning (or at least the announcement) of a return to normal monetary policy. With escalating tensions in many parts of the world, Europe in a fragile position, China’s economy slowing, and the U.S. facing the fun and games of a presidential election, there are notable challenges ahead. Even so, given the progress this year, 2016 has the potential to be a year of continued strengthening, and that is reason to celebrate.

Happy Holidays to everyone!!