The unemployment rate fell unexpectedly in November
What’s the definition of a soft landing? Broadly, it’s a slowdown in the pace of growth to a sustainable pace that allows the economy to level off without crashing. The challenge is that central bankers (the allegorical pilots for the economy) have a terrible track record of pulling it off. Whether this time is different remains to be seen, but the November jobs report added some credence to the possibility that it could be.
The economy created 199,000 jobs last month, helped in part by the return of striking UAW workers from the picket lines to the production lines. Revisions to prior months shaved the net gain to 164,000.
Gains were fairly widespread across various industries, with 80% of the 150,000 private sector increase focused in the service sector. Healthcare hiring remains quite robust, adding 93,000 last month, although retail employment declined by 38,000 — a bit of a surprise for a sector that’s within its peak seasonal period of activity.
The unemployment rate retraced a portion of its recent uptick, dipping to 3.7%. The survey of households indicated a robust gain of nearly 750,000 Americans employed last month, with much of that increase directly attributable to over 500,000 new entrants into the labor force. The number of unemployed individuals declined by 200,000 to about 6.3 million.
Overall, the report painted a slightly better picture of the state of the U.S. labor economy than economists had forecast. Heading into the report though, there had been growing whispers of an even more pronounced slowdown in the making. That could still be coming in the months ahead to the extent that retailers trim their workforce as is usual after the holiday shopping season and the recent distortions from the UAW strike recede.
Regardless of the single-month results, there’s ample evidence that the labor market continues to cool. Job openings have declined to their lowest level in nearly three years, although layoffs haven’t moved meaningfully. That could be consistent with a soft landing, to the extent that employers are content to slow the pace of hiring without cutting their payrolls outright.
Policymakers are also closely watching average hourly earnings, which have gradually declined since early 2022 but remain above the pace set through the last expansion. Average hourly earnings held relatively steady at 4.0% for the year ended in November, ticking up by 0.4% for the month. Wage growth will remain a source of potential concern, particularly if hiring regains momentum and the jobless rate falls further in the coming months.
Steady but solid growth in nonfarm payrolls as inflation continues to drift lower adds some credibility to the soft-landing argument but could call into question the degree to which markets have priced in meaningful rate cuts by the Fed in the coming year. Will the reduction in momentum and expectations for a further easing in inflation pressures be enough for the Fed to begin to take its foot off the brakes, or will policymakers need to see more to be comfortable that they’ve achieved their goals? That’s the debate that will continue to play out in the markets as investors vote their views.
The bottom line? The November jobs report was modestly stronger than expected, but employment conditions more broadly continue to gradually ease. That balance is likely to be enough to keep the Fed on hold for now, with the need for additional easing in inflation pressures likely needed for policymakers to give serious thought to cutting policy rates.
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