In a recent report, the U.S. Labor Department revealed that job growth in November surged, propelling optimism about the strength of the labor market and diminishing expectations of an early interest rate cut in the coming year.
The unemployment rate experienced a notable drop to 3.7%, down from the previous month’s 3.9%, dispelling concerns of an impending recession. While the report suggests a robust employment landscape, it has not altered the prevailing belief that the Federal Reserve’s rate-hiking cycle has reached its conclusion, especially with moderate growth in annual wages and a recent trend of cooling inflation.
Macro analyst Richard de Chazal at William Blair in London commented on the report, stating, “This was a relatively healthy report and will help to push back some of the excitement around imminent and aggressive rate cuts.”
Which Sector contributed to job creation?
According to the Labor Department’s Bureau of Labor Statistics, nonfarm payrolls increased by 199,000 jobs in November, surpassing economists’ expectations of 180,000.
The healthcare sector took the lead in job creation, contributing 77,000 jobs, primarily in ambulatory services and healthcare facilities. Government payrolls also saw a substantial increase, adding 49,000 jobs, driven by local government hiring.
While the November employment figures are positive, the overall labor market is displaying signs of cooling. September’s job additions were revised downward by 35,000, and November’s gains fell below the monthly average of 240,000 observed over the past year. Nevertheless, the payroll gains remain well above the 100,000 jobs per month necessary to accommodate the growth in the working-age population. The return of automobile workers and actors after strikes played a role in boosting employment figures.
In the sector breakdown, manufacturing employment increased by 28,000 jobs, with a significant rise of 30,000 jobs in motor vehicles and parts as United Auto Workers (UAW) union members returned to work after striking against Detroit’s “Big Three” car makers. However, retail employment experienced a decline of 38,000 jobs, attributed by some economists to issues in adjusting data for seasonal fluctuations.
The financial markets responded by adjusting expectations, lowering bets of a rate cut in March, with higher odds now seen in May. Most economists maintain the belief that the Federal Reserve will initiate easing monetary policy in the second half of 2024 as inflation subsides.
The University of Michigan’s survey results released on Friday reinforced these expectations. Consumers’ 12-month inflation expectations dropped to 3.1% in December, the lowest reading since March 2021, down from 4.5% in November.
Despite the positive job growth report, the Federal Reserve has already increased its policy rate by 525 basis points since March 2022, reaching the current range of 5.25%-5.50%.
Stocks on Wall Street responded positively, trading higher, while the dollar strengthened against a basket of currencies, and U.S. Treasury prices experienced a decline.