Warm US Jobs Report Leaves Macro Narrative Mostly Intact

The US economy added 199,000 jobs in November, Friday’s hotly-anticipated government release showed.

That was comfortably ahead of expectations. Consensus was 185,000. The range of estimates, from nearly 80 forecasters, was 45,000 to 275,000.

Revisions were largely immaterial. September’s headline was revised slightly lower. October’s month-to-month gain stands at 150,000.

Private payrolls rose 150,000, slightly fewer than expected, and mostly consistent with the November ADP report.

Gains were concentrated in health care, government and restaurants. Manufacturing payrolls rose 30,000, entirely attributable to striking workers returning to assembly lines. Retail shed 38,000 jobs.

Average hourly earnings came in warm. The MoM change was 0.4%, double October’s month-to-month gain and above consensus. That’s not friendly to the disinflation narrative, and will doubtlessly contribute to “hot” characterizations of the overall report. On a YoY basis, average hourly earnings rose 4%, in line with consensus.

The unemployment rate moved back to 3.7% from 3.9% in October, a decline made all the more notable by an uptick in participation (to 62.8% from 62.7%). Consensus expected no change in the unemployment rate (and no change in participation).

Those inclined against the “soft landing” narrative will argue the jobless rate is still “too low” to be consistent with price stability, but it’s worth noting that the pessimistic narrative seems to ebb, flow and shift depending on the incoming data. Earlier this week, when the JOLTS report showed a sharp decline in job openings and ADP undershot, pessimists warned the unemployment rate might spike. Some of the same people will invariably now say that the jobless rate isn’t high enough.

Whatever the case, the move back lower in the jobless rate gives the Fed some plausible deniability to stick with very low unemployment forecasts in the new SEP next week, even as that also means Jerome Powell will once again be compelled to explain the disparity between his long-standing contention that restoring inflation to target will require a softer labor market and forecasts which suggest very little in the way of softening. Still, I’m not sure officials will be terribly upset about the lack of additional “progress” towards securing and sustaining four-handle unemployment — as long as CPI doesn’t overshoot on Tuesday,

Recall that October’s jobs report came packaged with a big drop on the household employment series. Specifically, the survey showed a 348,000 decline. That was the largest drop since the original pandemic jobs apocalypse in April of 2020. November’s print erased that drop, plus some more. A lot more, in fact. Household employment rose 747,000 in November. (That’s why no one trades the household print. It’s not reliable.)

To be sure, November’s jobs report painted a more robust picture than the JOLTS update and was incrementally better than ADP. Between the headline beat, the warm MoM AHE print and the decline in the unemployment rate, Friday’s release will surely be described as a firm read on the US labor market. In that context, it wouldn’t be surprising to see the US rates complex reverse course, where that means yields may move higher and rate cut pricing for 2024 might well be trimmed. (Do note: It’ll be difficult to discern what part of the price action in Treasurys is attributable to NFP and what’s traders setting up for next week’s supply.)

But from a bigger picture perspective, there are worse things in the world than a solid read on job creation at a time when, as far as we know, inflation is still on track to moderate further. Warm though Friday’s labor market update was, nothing stood out as “alarming” from the perspective of the Fed’s quest to restore price stability. The three-month moving average for the NFP headline was 204,000 on Thursday. It was 204,000 on Friday too.