The strong U.S. labor market finally appears to be simmering down after a long stretch of rapid hiring. Here’s what to watch for in the November jobs report due Friday morning.
The forecast
The U.S is expected to add solid 190,000 jobs in November following a 150,000 gain in the prior month, according to economists polled by the Wall Street Journal.
Why an increase, if the economy is slowing? The return of striking Hollywood and United Auto Union workers will add up to 50,000 jobs to the headline number. And government employment has been risen sharply.
Such an increase would fall below the 239,000 average monthly gain so far this year, but it would still be too fast for the Federal Reserve.
Fed Chair Jerome Powell and his colleagues want to see demand for workers ease to about 100,000 jobs a month, representing the typical growth of the labor force. Anything higher could put upward pressure on worker pay and add to inflation.
Other labor market indicators, such as the ADP jobs report and U.S. job openings, have suggested hiring has slowed.
Market reaction
The S&P 500
SPX
has rallied around 5% and the yield on the 10-year Treasury note
BX:TMUBMUSD10Y
has fallen from around 4.6% to 4.15% since the last jobs report on rising expectations for a series of rate cuts in 2024. Yields and debt prices move opposite each other.
As a result, market participants will be much more sensitive to a hotter-than-expected number than to a softer-than-expected figure, said Tom Essaye, founder of Sevens Report Research, in a Thursday note.
That means the threshold for “too hot” figures — including payrolls, the unemployment rate and wages — that cause a pullback in both stocks and bonds is lower than it’s been all year because the market has so aggressively priced in a dovish Fed, he wrote.
“So, there’s less of a margin for error if the jobs report is stronger than expectations.”
Key details to watch
Unemployment rate: Economists polled by the Wall Street Journal expect the jobless rate to remain unchanged at 3.9%.
The jobless rate has crept up from 3.5% in July, but it’s not entirely a negative sign.
Some of the uptick reflects an increase in the number workers who were laid off, but more people also entered the labor force in search of work because jobs are easier to find. Most don’t find jobs right away and they are counted as unemployed.
If the rate keeps rising, however, it would likely be the result of businesses cutting jobs in anticipation of tougher times ahead.
Hourly pay: Average hourly wages are expected to accelerate slightly and rise 0.3% in November, according to the Journal survey.
That’s also a bit higher than the Fed would like.
The central bank would prefer smaller increases of 0.1% to 0.2% a month to return wage growth to pre-pandemic levels of 3% or less.
The increase in pay in the 12 months ended in November, meanwhile, is also seen dipping to 4% from 4.1% in the prior month and almost 6% in the spring of 2022.
Shortly before the pandemic, wages were rising about 3.5% a year. Yet they rose an average of less than 3% annually from 2010 to 2018, when inflation was extremely low.
Hours worked: Businesses trim the number of hours employees work — especially in service jobs like retail and hospitality— before resorting to layoffs when the economy slows. And they’ve been starting to do that.
The number of hours worked by the typical employee matched a three-year low of 34.3 hours in October, but it’s likely to get a bump up from the end of the UAW strike
It would be a warning sign for the economy if the number dropped below 34 hours.
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