Wall Street Pricing in December Cut Despite Strong Jobs — Evening Brief – 12.06.24
Nonfarm payrolls increased by 227,000 in November, making up for the storms and Boeing strike-related 12,000 gain in October, suggesting the labor market remained strong, according to the U.S. Department of Labor (BLS) data.
The labor force participation rate unexpectedly decreased to 62.5% from the 62.7% expected and 62.6% in the previous month, while the unemployment rate increased to 4.2% from 4.1% in October, as anticipated.
It is important to highlight that although the Establishment report recorded a robust growth of 227,000, the Household survey revealed a decline, with employment decreasing by 355,000 to 161.141 million. The Household Survey is the basis for the unemployment rate.
September was revised up by 32,000 to +255,000, and the change for October was revised up by 24,000 to +36,000. With these revisions, employment in September and October combined is 56,000 higher than previously reported.
Average hourly earnings rose +0.4% on the month versus +0.3% consensus and +0.4% in October. Year-over-year, earnings rose 4% versus +3.9% expected and +4.0% in October, indicating that wage growth pressures remain.
The return of workers who were on strike in October was reflected in the addition of 32,000 jobs in the transportation equipment manufacturing sector. The BLS also reported that employment increased in health care (+54,000), leisure and hospitality (+53,000), government (+33,000), and social assistance (+19,000), but jobs were shed in the retail trade sector (-28,000).
“The labor market still looks to be slowly and unevenly cooling, but the underlying trend may not be so apparent in today’s numbers,” Bryan Jordan, Cycle Framework Insights, Inc chief strategist, shared in an email with Connect.
The robust gains, together with upward revisions from prior months, may complicate the Federal Open Market Committee’s decision to cut interest rates at the December 17-18 meeting.
Peter Tchir, head of macro strategy at Academy Securities, wrote that it “Should be a neutral to mildly hawkish 25 basis points, as the underlying data, away from the unemployment rate, based on back-to-back bad months in the Household survey, is likely to be deemed the outlier.”
“[The Fed] will point to [the] unemployment rate as a reason to remain vigilant but will also have to address the strength of ADP and Establishment versus the Household [surveys],” Tchir added.
The probability of a quarter-point rate cut by the Federal Reserve was 72.1% ahead of the data, then dipped to 70.3% following the report before ending the day at 90.8%, according to the CME FedWatch Tool.
“This is going to be a close call but they’re [the Fed] likely to go with 25 basis points and then definitely be in wait and see mode,” Roger Ferguson, former Federal Reserve Vice Chairman, told CNBC.