Friday, December 6, 2024

It’s finally here: the non-farm payroll Employment Report for November, from the U.S. Bureau of Labor Statistics (BLS). Headline 227K new jobs filled last month came slightly ahead of the 214K analysts were expecting. Everyone expected a bounce-back from a strike-and-hurricane-ravaged October headline, which itself was upwardly revised to 36K. The Unemployment Rate, also unsurprisingly, ticked up to 4.2%. 

This is warmer than many observers — including those in the Fed, most particularly Chair Jerome Powell — had been expecting by this time of the year. Long was the belief — with about a year and a half of an inverted 2-year/10-year bond yield curve, which was a sure red flag — that a recession was on the way, if not by mid-2024 than certainly by the end of it. But the economy is proving far more resilient than that.

Average Hourly Earnings rose 10 basis points (bps) to +0.4%, the highest rate since we saw a +0.5% way back in January. This is another notch for a more-robust labor market. Year over year, +4.0% is steady, not coming down. And the Labor Force Participation Rate and the Average Workweek came down. The U-6 segment, aka “real unemployment,” reached +7.8%, the highest since August.

We had heard reports on low holiday retail hiring so far this season, but those numbers wouldn’t likely show up until December BLS numbers. That said, to whatever extent that may have been part of the narrative in the current report, may have been a subtle headwind against an already-strong 227K new jobs created last month.

What Do Today’s Jobs Numbers Mean for Fed & Interest Rates?

With this big report out and filling in a lot of unchecked boxes, attention turns to the Fed’s dot-plot on interest rate reductions going forward. Once cutting began after signs of a slowing economy back in September, most economic prints thereafter have shown a measured cooling in a very “soft-landing” way. 

But in two of the last three months of BLS data, we’re seeing resistance. The trailing 4-month average of +149K new jobs per month (including the crummy October) is nearly identical to the +148K trailing average the previous 4 months. We’re not going to put all of our weight on it, but it’s starting to feel like a floor.

Nobody seems to be meaningfully resistant to a 25 bps cut in two weeks, to a 4.25-4.50% range, so that does not look to be too much in danger. It’s unlikely any major data-driven event will have enough impact to keep this cut from happening in that short amount of time.

But analysts are now agnostic about rate cuts in the new year. Prints like today’s hotter jobs report is a good example of why the Fed should be cautious moving forward too generously with rate cuts. On December 18th, once the likely 25 bps cut occurs, we’ll also hear how Powell is shifting his and the rest of the Fed’s outlook on possible re-inflation into 2025.

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