Evening Brief – 12.08.23
Higher for Longer Still Alive
The U.S. Bureau of Labor Statistics reported on Friday that nonfarm payrolls increased by 199,000 in November, exceeding the October print of 150,000 and, more importantly, above the consensus forecast of 183,000. The unemployment rate fell from 3.9% to 3.7%.
The drop in the unemployment rate is likely to make Fed officials nervous, implying that an interest rate cut early next year is premature and higher for longer is still very much alive. Following the payrolls report, the probability of a March rate cut fell from roughly 60% to around 50%.
The decline in the unemployment rate can be attributed to the jump in employed workers, as well as the increase in the participation rate, which rose to 62.8%.
“The data definitely works with rhetoric that the tightening cycle may not be over, even if this is regarded as unlikely, and that it is premature for officials to be talking about easing. In short, the data extends the likelihood of a longer than usual plateau in rates,” said Deutsche Bank’s global head of G10 FX strategy Alan Ruskin.
The data comprised approximately 47,000 previously striking auto and motion picture workers. According to the BLS, “job gains occurred in health care and government. Employment also increased in manufacturing, reflecting the return of workers from a strike.”
Furthermore, as has been the case each month this year, the preceding month’s data was revised down, with September falling 35,000 to 262,000 and October unchanged at 150,000.
Nonetheless, the data was good, especially given that the number of employed workers as tallied by the Household survey increased by 747,000 to 161.969 million, reversing several months of dismal prints, including a 348,000 decrease last month, and reaching the highest on record. This was the third most significant gain in the Household survey this year.
Meanwhile, the monthly wage gain was slightly higher than anticipated, with average hourly earnings for all employees rising by 0.4%, to $34.10, exceeding the 0.3% forecast. Average hourly earnings climbed by 4% over the last year, in line with estimates and unchanged from the downwardly revised 4% in October.
Priya Misra, portfolio manager at JP Morgan Investment Management summed up today’s report: “Strong number, solid wages and higher participation should keep the soft-landing narrative alive. We knew that strikes would add to this number. Some of the near-term Fed rate cuts will get taken out but we think people will buy the dip. Not many had the opportunity to buy 10y Treasuries at 5% but even 4.25% is not a bad level heading into a slowing growth and inflation world. Good number for risk assets.”
With payrolls largely a non-event focus now shifts to next week’s November CPI report.