November Jobs Report Forecasts Call for More Moderate Growth In Hiring

Forecasts for the November jobs report predict another month of moderate growth, as investors look for hints as to how long it will be before the Federal Reserve can cut interest rates.

For now, bond market prices suggest the Fed could cut rates as soon as March. But hopes for rate cuts in 2023 were dashed by the strength of the economy, including a hotter-than-expected jobs market for most of the year. With strong overall growth and a tight jobs market, the Fed’s concern was that improvement in inflation could stall or even reverse.

The October jobs report was the first that investors took to show clear-cut signs of the kind of moderation in jobs growth that would not only allow the Fed to end its cycle of rate hikes but also begin to cut rates in 2024.

“Inflation has been the key driver that’s pushed the market to pull forward rate cuts for 2024,” says Charlie Ripley, senior investment strategist at Allianz Investment Management. “But you still have this wildcard out there in terms of the labor market.”

Ripley says that any data that demonstrates a loosening labor market and weakening wage pressures (alongside falling inflation) would support the case for rate cuts in the second half of 2024, while data showing a hotter labor market would complicate the picture.

November Jobs Report Consensus Estimates

• Nonfarm payroll employment to rise 172,500 vs. the 150,000 increase in October.
• Unemployment rate to remain at 3.9%.
• Hourly earnings to rise 0.3% on a monthly basis, up from 0.2% in October.

Friday’s employment report comes ahead of another highly watched release happening next Tuesday: November’s Consumer Price Index report. Inflation has fallen steadily this year, but job growth has been a different story, with much bumpier data thanks to blockbuster numbers in September. The CPI report will then be followed on Wednesday by the Fed’s next decision on interest rates.

What to Expect from the November Jobs Report

After October’s jobs report showed signs of cooling, economists are anticipating more of the same this time around.

For November, nonfarm payroll employment is expected to rise by 172,500, according to FactSet’s consensus estimate. That’s higher than October’s headline number, but investors should remember that November’s data will be distorted by the end of the United Auto Workers and SAG-AFTRA strikes. This is expected to boost the month’s headline number by more than 41,000, according to Gregory Daco, chief economist at EY. That will be the opposite of October, when those workers weren’t counted in the payroll data.

Overall, Daco says November’s report will show a labor market continuing to return to normal dynamics after several years of pandemic-related distortions. Daco expects job growth moderation to continue into 2024.

Manufacturing and Construction Growth Cools, Retail and Leisure Slowdown to Come

In November, “We’re going to see more weakness on the manufacturing front,” Daco says. Additionally, “We’re likely to see the construction sector under some pressure,” though he expects job growth to remain positive in this area.

And as consumer spending begins to slow, Daco is looking ahead to December for weaker readings in the retail and leisure sectors. “People have been spending less and we’re in a softer environment,” he explains.

Ripley says that while wage growth remains higher than it was a decade or so ago, “we’re still seeing a slow trend lower.” If that trend continues, he adds, it will bode well for the Fed’s fight against inflation.

Will the Fed Cut Rates Soon?

Sentiment in financial markets has rapidly shifted from speculation over whether the Fed’s hiking cycle is over to anticipation of the first cut, intensifying investors’ focus on jobs and inflation data.

Markets are already paying attention. A separate report showing a slight decline in job openings for October released Tuesday boosted bond prices and sent benchmark Treasury yields to their lowest level in three months.

Ripley cautions that the Fed’s actions will remain dependent on the actual data it sees rather than follow a predetermined course. That means there’s no guarantee that traders’ forecasts of multiple Fed rate cuts next year will come to pass if the numbers don’t support the case for loosening policy.

“We’ve seen somewhat of a slowing path in terms of how the labor market has developed, but it probably hasn’t been to the magnitude that the Fed would like to see,” Ripley says. “The biggest risk on the horizon is that wage pressure stays elevated and the labor market stays tight.”