The Bureau of Labor Statistics reported Friday that job creation in November rebounded from a slump in the previous month as the effects of a major labor strike and severe storms in the Southeast eased.
Nonfarm payrolls increased by 227,000 jobs during the month, compared with an upwardly revised 36,000 in October and the Dow Jones consensus estimate of 214,000. September’s payrolls revised upward to 255,000, an increase of 32,000 from the previous estimate. Hurricane Milton’s effects and the Boeing strike delayed the October payrolls figure.
The unemployment rate rose to 4.2%, as expected. The unemployment figure rose as the labor force participation rate fell and the labor force itself declined. A broader measure that includes discouraged workers and those working part-time jobs for economic reasons rose slightly to 7.8%.
The data is likely to give the Federal Reserve the green light to cut interest rates later this month. “The economy continues to produce a healthy amount of jobs and income gains, but the additional increase in the unemployment rate is taking the shine off the labor market and giving the Fed what it needs to cut interest rates in December,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management.
Job gains were concentrated in health care (54,000), leisure and hospitality (53,000), and government (33,000), sectors that have consistently led payroll growth over the past few years. Social assistance added 19,000 to the total.
One notable trend in the December report was the rise in average hourly earnings, which rose 0.3%. That increase brought year-over-year wage growth to 4.6%. Higher wages are generally positive for consumer spending, as they provide individuals with more disposable income.
164K Jobs Expected, US Nonfarm Payrolls Change Impacts Interest
Traders and economists expect the nonfarm payrolls report to show that the US created a net 164K jobs, with average hourly earnings rising 0.3% month-over-month (4.0% year-over-year) and the U3 unemployment rate holding steady at 4.2%.
Natural Family Planning Overview
Last month’s jobs report beat expectations in terms of overall job growth and revised estimates, but much of that strength can be attributed to the recovery from previous weather-related disruptions. More importantly, the household survey was relatively weak, leading to a lower participation rate and a higher unemployment rate (to 4.0%).
For this month, the outlook is more muted, with economists expecting “only” 164K net jobs and the unemployment rate to hold steady at 4.2%. A key area to watch is the average hourly earnings measure, which has edged up slightly in recent months, raising concerns about accelerating wage growth and potentially limiting the Fed’s scope to cut rates further if it continues:
As the bottom left box below indicates, traders are skeptical that the Fed will deliver much in the way of additional rate cuts this year, with only one 25 basis point cut expected in the first half of the year and only a 50/50 chance of a second cut in the second half of 2025. With only a handful of jobs and inflation reports remaining before the U.S. central bank’s “crucial moment,” this week’s jobs report may not be as market-shattering as other, more immediately influential releases.
The employment component of the ISM manufacturing PMI fell to 45.3 from 48.1 last month. The Institute for Supply Management’s service sector employment index held steady at 51.4 from 51.5 last month. The ADP employment report showed 122,000 net new jobs, down from 146,000 jobs the previous month.
Cautiously Optimistic About Labor Market Amid Economic, Geopolitical Challenges
Looking ahead, analysts are cautiously optimistic about the labor market’s trajectory. While the December report provided encouraging signs, challenges remain. The ongoing threat of inflation, particularly in sectors such as energy and food, could weigh on consumer purchasing power and, consequently, job growth. Additionally, geopolitical uncertainty, including tensions in Eastern Europe and potential disruptions to global supply chains, could pose risks to the labor market.
The outlook for upcoming nonfarm payrolls reports is mixed. Some analysts expect job growth to begin to slow as the economy approaches full employment. Others argue that the labor market still has room to grow, especially in sectors that have lagged behind in the recovery. The Fed’s actions in the coming months will play a crucial role in shaping the job landscape. As the central bank navigates the delicate balance between supporting economic growth and controlling inflation, its decisions will have far-reaching implications for the labor market.
Weighing in the data and our internal models, leading indicators point to a roughly as-expected reading for this month’s nonfarm payrolls report, with headline job growth likely to come in somewhere in the 150-200k range, albeit with a wide range of uncertainty given the current global backdrop.
Regardless, the monthly volatility of this report is notoriously difficult to predict, so we don’t put much stock in any forecasts (including our own). As always, other aspects of the release, including most notably the closely watched average hourly earnings figure which came in at 0.4% m/m in the latest nonfarm payrolls report, are also important.
As we’ll explain below, the US dollar has rallied to test its highest levels in over two years, but a recent pause near those highs has prevented the pair from heading into the nonfarm payrolls report in overbought territory.
