• US non-farm payroll employment added 227,000 jobs in November
   
• Revisions to the two prior months were higher by 56K from the previously reported figures

• Unemployment rate up to 4.2%

• Average hourly earnings gain 0.4% MoM, 4.0% YoY

• Labor force participation rate ticked down to 62.5%

• Jobs data all but confirms a December rate cut

The U.S. economy added a seemingly solid 227,000 new jobs in November, but much of the gain was acceleration was mostly driven by the unwinding of hurricane-induced job loss and the conclusion of Boeing strikes, each of which depressed job gains in October. The change in total nonfarm payroll employment for September was revised up by 32,000, from 223,000 to 255,000, and the change for October was revised up by 24,000, from 12,000 to 36,000. With these revisions, employment in September and October combined is 56,000 higher than previously reported. Job growth has averaged 173,000 over the past three months, better than the six-month average of 143,000.

The 227,000 increased in new jobs in November was inflated by workers returning to their jobs after a pair of major hurricanes and a strike at Boeing. Private sector payrolls posted an increase of 194,000 while the usual suspects of government, leisure & hospitality and private education & healthcare services accounted for 165,000 of the total 227,000 figure with the largest gains seen in health care & social assistance (+72.3k), leisure & hospitality (+53k), professional & business services (+26k) and manufacturing (+22k). The gain in manufacturing were largely payback from the month prior following the resolution of the Boeing strike. The public sector added 33k new positions last month.

The unemployment rate ticked up to 4.2%, accompanied by a decline in the labor force participation rate to 62.5% – a six-month low. Average hourly earnings rose 0.4% MoM and 4.0% YoY.

The household survey was weaker, showing that employment fell 355k after a 368k drop in October. This has led the unemployment rate to rise to 4.2% from 4.1%. We also see that the number of full-time workers fell again while part-time employment continues to rise. This yet again suggests that the quality of jobs that the US economy is generating is not especially great. The jobless figure rose as the labor force participation rate nudged lower and the labor force itself declined. The labor force participation rate fell 0.1 percentage points to 62.5% – a six-month low. The unemployment rate ticked up last month and a growing number of jobless Americans are taking longer to find a job is a reflection of a pullback in hiring. People are staying unemployed, on average, for 23.7 weeks or more than five months, the highest duration since April 2022. A broader measure that includes discouraged workers and those holding part-time jobs for economic reasons moved slightly higher to 7.8% from 7.7%.

Average hourly earnings rose 0.4% MoM, holding at a 4% increase annually. Strong pay gains appear to be a holdout while other Covid-era distortions fade.

Jobs Data All but Confirms a December Rate Cut

After last months’ near-stagnation, mainly driven by hurricanes and strikes, US job growth rebounded by 227k. However, data from the previous two months also were upwardly revised by a net 56k. Wage growth also was slightly stronger than expected with average hourly earnings at 0.4% MoM and 4.0% YoY. However evidence from the separate consumer survey was far less inspiring. The workforce experienced a reduction of 193k individuals, accompanied by a significant drop of 355k in overall employment. As a result, the unemployment rate edged up from 4.1% to 4.2%, and the labor force participation rate slightly decreased from 62.6% to 62.5%.

However, looking past the pendulum swing of recent months, the US labor market remains stable - but cooling - and still has not shaken the cause for concern that a greater weakening may be at hand. Markets apparently focused more on the content of the consumer survey and see the rise in the unemployment rate as supporting the case for a rate cut at the December meeting. Barring any crazy inflation surprise in the week ahead, markets appear fairly certain that the Fed will deliver a 25 bps cut in December. Federal Reserve policymakers will enter a media blackout that kicks in on Saturday, in the run-up to the central bank’s Dec. 17-18 policy meeting.

The focus moves back to the CPI inflation data as speculation grows around a December rate cut. The CPI report for November, out on December 11, will be the last major piece of the jigsaw for policymakers ahead of the meeting, so a strong market reaction is almost guaranteed. Progress on the inflation fight has started to stall. Consumer prices rose 0.2% over October, pushing the year-over-year change up to 2.6%. Excluding food and energy, the core CPI rose 0.3% for a third straight month. True, inflation has gotten to a better place over the past year, and some key sources of inflationary pressure, such as an overheated labor market, continue to dissipate. However, the disinflationary momentum is fading, and new headwinds - e.g., the potential for tariffs and tax cuts - have emerged that make the final leg of inflation's journey back to the Fed's 2% target look increasingly difficult.

The stubborn picture of inflation that has surfaced over the past few months is unlikely to be altered by the November CPI report. Consensus expect headline CPI to advance roughly 0.3% MoM and 2.7% YoY. Excluding the more volatile components, consensus forecast the core index also rose around 0.3% MoM, which would keep the 12-month change stuck in the narrow range of 3.2%-3.3% for a sixth straight month. While core services inflation should ease modestly relative to its recent trend, the two-month streak of price increases for core goods is likely to extend to three in another sign that goods deflation is subsiding.

Policymakers agree that policy remains restrictive and the sticking point seems to be over the pace of cuts. Barring any upside surprises, the Fed will probably be inclined to lower rates in December and the idea of Trump assuming office will play in the minds of policymakers. With inflation progress showing early signs of stalling and some of the incoming administration’s policy proposals - including the potential for tax cuts and tariffs - viewed as inflationary, the Fed is likely to proceed more cautiously with easing its policy rate in 2025.

Source: BIMB Securities Research - 9 Dec 2024