The addition of 227,000 jobs in November was a welcome relief after the unusually low, albeit upwardly revised, gain of 36,000 jobs in October. The three-month average of job additions amounts to 173,000 per month, a respectable pace for a sustainable labor market and strong enough for the Fed to feel more at ease with the labor market. The unemployment rate inched up to 4.2% from 4.1%, indicating a cooling demand for workers, but again, not too high to cause alarm. Sectors with the biggest gains included health care, hospitality and the government. Retail lost 28,000 jobs, which doesn’t make a lot of sense at the beginning of the holiday season. I expect there will be revisions in the December job report.
Even though the monthly government job report is considered the definitive gauge of the job market, it is important to look at other measures. The most recent JOLTS report provided additional insight into what is really happening in the labor market. With job openings steadily decreasing, people are staying put. Employers may not be aggressively hiring, but they are keeping current employees. The quits rate (a measure of workers voluntarily leaving a job) had been declining for the past two years. Weekly unemployment claims are near all-time lows while continuing claims have climbed over 40%.
KEY INDICATORS THIS WEEK
Manufacturing/Services– Activity is beginning to diverge between the manufacturing and services sectors. Manufacturing new orders, prices paid and employment improved in November while the three sub-indices deteriorated for key services companies. Manufacturing remains in contractionary territory and services in an expansionary mode, but the trend appears to be changing. Supply conditions improved for manufacturers, which is softening inflation pressures and pushing orders into expansion territory for the first time in eight months. The lower readings in the services survey were the lowest in months. Several comments from industry contributors cited apprehension over proposed tariffs and the presidential cabinet for 2025 before making any significant plans for expansion in 2025.
Fed Update – With the last FOMC meeting of the year close by, it is worth getting caught up on how the rate-setting committee is thinking. The takeaway from this week’s multitude of comments is that officials believe lowering interest rates remains the preferred course for monetary policy, but there is no sense of urgency. Federal Reserve Chair Jerome Powell gave the U.S. economy a passing grade in strength and deems the labor market to be in better shape than the committee thought last month. The rate cut in November was done primarily to send a strong signal that the Fed is going to support the labor market. Even with signs that the labor market is basically okay, the futures market expects another 25 basis point cut this month.
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