December US Jobs Report Preview

• Estimates project nonfarm payroll employment to have increased by over 200K in November, rebounding from last month’s menial +12K (prerevision). Unemployment is expected to rise above its October rate at 4.1%.
• To realize such a sizable rebound, we likely need to see broad employment gains across sectors even with the inherent rebound from the end of strikes and severe weather.
• While there is a reasonable chance of a broad rebound in this week’s job report, the strength of labor market expansion still depends primarily on the performance of Healthcare and Social Assistance, Government, and Leisure and Hospitality. ?That leaves us with a fragile expansion that may be easily undermined by ongoing (gradual) slowdown or unexpected events.

Nonfarm Payroll Employment

Estimates project a solid rebound in nonfarm payroll gains, exceeding +200K which is well above last month’s menial gains of +12K. Even accounting for severe weather and strikes, last month’s nonfarm payroll gain remains one of the weakest gains seen over the past three years. This year, employment growth dropped steeply starting in May from the 200K to 300K (from October 2022 to April 2024) range to the 100K to 200K range. This drop off serves as a clear signal that the labor market cooled further as the impact of past rate hikes likely peaked this summer.

To realize this rebound, we likely need to see a broad recovery in employment growth across sectors. The key sectors Government, Healthcare and Social Assistance, and Leisure and Hospitality account for 75% of nonfarm payroll gains since January 2023. However, every month in 2024 where payroll gains exceeded 200K also had robust gains outside of these key sectors. To this end, the notable increase in job openings in Professional and Business Services and Information on top of Accommodation and Food Services at the end of October may be a promising early signal.

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Unemployment and Labor Force Participation

The unemployment rate is expected to rise above its current rate of 4.1%. Continuing claims data has trended up mildly in recent weeks, while initial claims has trended downward. Taken together, these data signal rising unemployment due to enduring unemployment spells (as a result of a slower hiring) rather than job loss.

The BLS’ household survey shows weak employment gains to date, averaging +34K from January to October – well below its 2010-2019 average of +174K. It is worth noting that the household employment gains have not been this muted since 2013.

Labor force participation for workers aged 25 to 54 remains strong in historical terms, though it has trended downward since peaking in July. The employment-to-population ratio for 25-to-54 year olds also peaked in July but remains strong in historical terms. Despite this stall in labor supply growth, wage growth moderation continues even as nominal wage growth is longer be considered a key driver of price inflation.

Data Roundup

Today’s Job Openings and Labor Turnover Survey (JOLTS) and LinkedIn data indicate that the labor market remains in a hiring lull which is just strong enough to support low unemployment and ongoing employment growth. However, this dynamic remains fragile as we saw in October. Additional (gradual) slowdown or unexpected events may easily push the labor market into a concerning state at this point.

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• This week’s JOLTS report saw notable increases in job openings in Professional and Business Services as well as Information, culminating in job openings returning to July levels. Overall, hiring slowed in October as expected from October’s weak job report with a notable hiring drop off in Leisure and Hospitality, which has been a key driver to nonfarm payroll gains. The quit rate ticked up but has been relatively unchanged this summer. The layoff rate ticked down and has bounced between 1.0 and 1.1 all year. Quits and layoffs picked up notably in Accommodation and Food Services alongside hiring slowing, leading to a contraction in payroll for the Leisure and Hospitality sector in October. Overall, JOLTS indicates the performance of the labor market continues to be driven by the hiring slowdown.

• Based on the LinkedIn’s National Hiring Rate, overall hiring slowed 5.4% from October to September with hiring falling across all industries and metros tracked. The largest decelerations occurred in Accommodation and Food Services (-7.4%) and Administrative and Support Services (-7.9%) – the latter of which falls under Professional and Business Services in the Bureau of Labor Statistics industry taxonomy. Alongside the recovery in Information job openings in JOLTS, the Technology, Information, and Media industry in LinkedIn data continues to outperform other industries, posting the smallest year-over-year decline in October (-1.2%).

• While a downside outcome for nonfarm payrolls on Friday will be considered a surprise, it remains within the realm of possibility. The Federal Reserve lowered the US target policy rate by 25 basis points in November, however, monetary policy remains restrictive and will continue to weigh on the labor market.