November Jobs Report Shows Steady Strength In Hiring

The Bureau of Labor Statistics’ November report showed continued healthy gains in hiring, with the labor market having cooled off from its red-hot pace seen earlier in the year.

Overall, the report came in somewhat stronger than many economists forecast, but not significantly enough to change the medium-term outlook for an economy that continues to show no clear signs of a recession.

The strength of the jobs market is a pivotal piece of the puzzle for the Federal Reserve. Many in the stock and bond markets are expecting multiple rate cuts from the central bank in 2024, against the backdrop of a slowing economy and softening inflation.

The Fed is grappling with the difficult task of bringing down stubborn inflation without damaging the jobs market and triggering a recession. On the other hand, a labor market that remains too robust could push cuts—which bond traders had been expecting as soon as March—to later in the year. Friday’s jobs report appears to have been strong enough that bond traders are shifting their expectations for Fed rate cuts to happen later in 2024.

Job Gains Above Expectations

The U.S. economy added 199,000 jobs in November. That exceeded the consensus forecast of 172,500, according to data from FactSet. Meanwhile, the unemployment rate fell to 3.7% from 3.9% in October. Economists expected that rate to remain steady.

“Job growth is holding steady for now,” says Preston Caldwell, chief U.S. economist at Morningstar. Hiring is in line with “normal” pre-pandemic trends, he adds.

“Today’s jobs report isn’t a needle-mover in terms of our assessment of the economy or the Fed’s likely upcoming actions,” Caldwell explains. He sees the economy slowing as 2024 progresses, with the odds against a recession.

November Jobs Report Key Stats

• Total nonfarm payrolls increased by 199,000 versus 150,000 in October.
• The unemployment rate dropped to 3.7% from 3.9% in October.
• Average hourly wages grew by 0.4% to $34.10 after rising 0.2% in October. Over the past 12 months, hourly wages have risen by 4%.

Nonfarm payroll growth has risen 1.6% on an annualized basis over the last three months, according to Caldwell. That’s the same rate as over the past six months. It’s also in line with the average 1.7% annual growth between 2015 and 2019, which he says can be used as a benchmark for normal growth before the disruptions of the pandemic.

Caldwell says recent moves in the headline unemployment rate, from 3.5% in July to 3.9% in October to 3.7% last month, are “mostly just statistical noise,” since the survey used to calculate it can be more volatile. He expects to see the unemployment rate tick up to 4.4% by the fourth quarter of 2024 as economic growth slows next year.

Healthcare, Government, and Leisure Drive Job Gains

The BLS said the headline jobs number was boosted by job gains in healthcare, where 77,000 jobs were added, and government, which saw an increase of 49,000 jobs. Manufacturing job gains were boosted by the end of a major strike in the auto industry. The leisure category also saw a sizeable increase of 40,000 new jobs.

Caldwell points out that together the healthcare and leisure sectors account for two-thirds of aggregate job gains over the past three months. Meanwhile, the retail sector showed declines, losing 38,000.

Wage Growth Continues to Normalize

Slowing wage growth is a critical component of the Fed’s fight against inflation, and November’s data shows continued progress. Caldwell notes that on an annualized basis over the past three months, wage growth has been running at 3.4%. That’s “already at levels consistent with 2% inflation,” he says.

He cautions that investors shouldn’t celebrate prematurely, since other surveys point to hotter wage gains than the Fed would like. “We’ll want to wait for more data,” he adds.

Fed Rate Cuts Likely Coming in 2024

Overall, Friday’s better-than-expected employment print prompted market participants to pare back their expectations for rate cuts in 2024. Right now, data from the CME’s FedWatch Tool shows that bond futures markets are pricing in a 48.5% chance that the central bank will cut rates in March. This is in line with Caldwell’s forecast.

In the coming week, the focus will turn to November’s Consumer Price Index report, which will be released Tuesday, and the Fed’s last rate-setting meeting of the year on Wednesday. The central bank is widely expected to hold rates steady at its current target range of 5.25%-5.50%.