In a time when the economy is expected to be slowing down, the upcoming jobs report for November is anticipated to reveal an increase in hiring pace. This is generally seen as a positive sign for the economy, as a growing economy is often the result of a solid labor market. However, there are concerns that this positive news could have unintended consequences. Economists surveyed by Dow Jones predict a growth of 190,000 nonfarm payrolls in November, surpassing the 150,000 figure from October. Despite this optimism, investors and policymakers have been hoping for a slowdown that would enable the Federal Reserve to halt the cycle of interest rate hikes. A strong jobs report could undermine this confidence and dampen the current buoyant mood on Wall Street.
Payroll growth has been averaging 204,000 over the past three months, a respectable gain although lower than the 342,000 level of the same period in 2022. While the unemployment rate has increased by 0.2 percentage points to 3.9% in the past 12 months, it is still indicative of a robust economy. Despite these positive figures, several factors come into play in the current economic landscape, making this month’s jobs report significant. One of the crucial data points to consider is wages. Average hourly earnings are expected to accelerate by 0.3% from October and 4% over the 12-month period. Although this yearly average hourly earnings level does not align with the Federal Reserve’s 2% inflation target, it has decreased from its peak of 5.9% in March 2022. Achieving sustainable wage growth is crucial for curbing inflation, and any significant acceleration could generate a market reaction.
In addition to wages, the headline unemployment rate is likely to receive extra scrutiny. While the increase in the jobless figure has been incremental over the past year, it has risen by half a percentage point from its recent low of 3.4% in April. This is of particular importance due to the Sahm Rule, a time-tested indicator that suggests when the unemployment rate rises by half a point from its most recent low on a three-month average, it signifies an economic recession. However, economist Claudia Sahm, who created the rule, has acknowledged that there are no guarantees this pattern will hold true this time. Nevertheless, warning signs are apparent, and the potential consequences of a rising unemployment rate should not be underestimated.
Other data released in recent weeks has shown some inconsistencies in the labor market. Job openings have reached the lowest level in two and a half years, and ADP reported only incremental growth in private payrolls. Furthermore, while continuing jobless claims have slightly decreased, they still remain high. However, it is worth noting that the November jobs report could be affected positively as auto industry and Hollywood workers return from strikes. Goldman Sachs estimates that these returning workers could contribute up to 38,000 jobs, significantly boosting the total figure. In fact, the firm’s economists expect the final report to exceed the projected 190,000 and reach a total of 238,000. This deviation from expectations has the potential to influence market sentiment and firm up the Federal Reserve’s position.
Neil Costa, founder and CEO of recruitment marketing firm HireClix, has observed a slowdown in job ads throughout the year. This trend has been particularly evident in the transportation, logistics, and manufacturing sectors. However, Costa highlights that some areas of the job market, such as healthcare, remain resilient. Looking ahead, Costa anticipates further deceleration in 2024 but does not foresee a deep recession. Despite these cautious observations, Costa emphasizes that companies are merely being prudent at this point in time.
The November jobs report carries significant weight for the economy. While a growing economy is generally seen as positive, concerns regarding inflation, wage growth, and the potential implications of a rising unemployment rate loom in the background. As the job market experiences varying dynamics and certain sectors face slowdowns, it remains to be seen how the overall labor market will fare. The upcoming report will undoubtedly shape policy decisions and impact market confidence, making it a crucial data point for investors and policymakers alike.
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