Weekly Update 12/06/2024: Payrolls Rebound But Unemployment Rises
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Employment
On Tuesday, the Jobs Openings and Labor Turnover Survey (JOLTS) report showed that in October job postings edged up to 7.74 million from 7.37 million in September according to the Labor Department. Openings rose the most in professional businesses and hotels and restaurants. The vacancy rate at the smallest businesses surged. The number of people who quit their jobs rose by 200,000 to 3.3 million, marking the highest level since May. In 2022, openings peaked near 12 million, so most of those positions have been filled in the following years. However, openings remain above prepandemic levels suggesting that companies continue to seek workers. With the so-called quits rate rising to 2.1% in October from September’s 1.9%, workers seem to be emboldened to seek better opportunities and is in stark contrast to October’s weak nonfarm payroll data. This set the stage for the release of the most current employment report for last month.
Today, the Bureau of Labor Statistics released its closely-watched payroll data today which showed jobs rose by 227,000 in November versus the consensus forecast of 220,000. October’s reading was revised higher to a gain of 36,000, versus the prior reading of a 12,000 gain. The two-month payroll net revision flipped from a loss of 112,000 to a gain of 56,000. While the survey of businesses was above expectations, there were still signs of weakness. Payroll growth over the past three months is averaging 173,000, down from the 267,000 three-month average recorded at the end of March and 198,000 three-month average at the end of November 2023. The unemployment rate, which is derived from a separate survey of households, inched higher to 4.2% from 4.1% in October.
October’s payroll report was weak thanks to hurricanes which ravaged the southeastern U.S. More than 500,000 reported they could not work that month because of weather. In November, just 56,000 reported that as an issue. Health care and social assistance were big job gainers last month while retail cut the most jobs in a year even with the holiday season upon us. Average hourly earnings month-over-month came in at +0.4% in November, up slightly from the consensus expectation of +0.3%. The participation rate, which measures the share of the population that is working or looking for work, fell to 62.5%, the lowest since May. The rate for workers aged 25-54, which is considered the prime working age group, was basically unchanged.
With inflation for now under control or at least moving sustainably towards its target, the Fed is likely to focus on its employment mandate when it meets in two weeks at its last scheduled monetary meeting of the year. The unemployment rate remains low historically speaking, but it is trending higher, inch by inch. There is now more permanent job losses compared to temporary layoffs. As noted above, the quits rate moved higher according to the JOLTS report, but people are not immediately finding new work—the number of people unemployed at least 27 weeks jumped to the highest level in nearly three years. Layoffs, however, have remained low with a few exceptions that grab headlines every so often. Markets are still unsure how to view President-elect Trump’s plans for mass deportations and his desire to reduce federal bureaucracy. Government hiring has been a key driver of the recovery from the pandemic.
The futures markets are pricing in an 87% chance of a rate cut on December 18 when the Fed next meets. That is up from 70% just yesterday before the employment report was released. With average earnings growth still a relatively healthy 0.4%, the Fed has to proceed down the rate cutting path with caution. Next week’s release of November consumer price (CPI) data will be a critical input received prior to their meeting. The market is pricing in the Fed adjusting its pace to cutting the benchmark rate at every other meeting. Should that CPI info come in above expectations, they could decide to institute a pause that halts any changes. Stay tuned.
Economic data
In other economic news this week, the Institute of Supply Management’s (ISM) index of services fell 3.9 points to 52.1 last month, the first decline since June. Readings above 50.0 indicate expansion so the economy remained in the growth mode, but the latest figure was weaker than all projections in a Bloomberg survey of economists. Fourteen industries reported growth in November led by accommodation and food services, entertainment and recreation and health care. Three industries contracted including mining and real estate. November was also the fourth consecutive month of declining backlog orders. Earlier in the week, the ISM manufacturing survey came in at 48.4, representing the eighth straight month of contraction. Together these reports suggest the final three months of 2024 will be more moderate than boom times.
Company Events
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