Jobs Market Steady

The week also brought us a host of jobs data, ending with a strong non-farm payroll print of 227k jobs added, compared to the 12k from the previous month. Granted the previous month was impacted by the hurricanes and strikes, but the print far exceeded the 225k expectation from analysts. In fact, payroll additions were higher than the last 6 month’s average.

Even the revisions to the data were higher. Last month’s 12k job additions number was increased by 24k to 36k, while the month before that was revised up by 32k. We’ve been seeing quite a few negative revisions over the course of this year, so this is a welcome sign.

While the NFP provides estimates of jobs, the Household Survey which gives us the Unemployment Rate provides estimates of employment status. The scope is wider and includes paid and unpaid employment, self-employment, farm workers, and those on unpaid leave.

The Unemployment Rate for November moved up marginally to 4.2% from 4.1%, indicating that there is some shift of status.

Average hours worked increased slightly which is a good sign.

When Average Hours Worked declines, there are more part-time workers - when companies don’t want to make a major commitment to a full-time employee. It could also mean that companies are cutting hours for existing workers, to pay them less.

So then the opposite is true, with average hours inching up again, this could be a sign of a healthier market. However, some of this could be skewed by temp work.

Temporary work goes hand in hand with the average hours worked. As the economy goes into a recession, temp work increases. We’re gradually starting to see temp work increase now as well.

Friday’s report shows us that people who “could only find part-time work” decreased, while the major temp work came from “Slack or Business Conditions”. Yet again more evidence, that this is probably more seasonal hiring than anything else, which means we may be in for a strong holiday season.

Looking at the JOLTS data that came out earlier in the week, we saw the Job Openings increase again. The number is still above pre-pandemic levels. A major increase in job openings was seen in the hospitality sector, and this could be the result of hiring extra help during the holidays.

Another thing to note is that most of the openings were for small (10-49 employees) followed by mid-sized (50-249 employees). Hirings were also in the same category, as were quits. It’s not surprising that small businesses tend to have the most turnover. A lot of the jobs could be temp staff, as we saw in the Household Survey Report.

Overall, layoffs are not increasing by as much. This indicates, yet again, how tight the labor market was, and that now it’s coming back into better balance.

Another measure that we like to look at, is the quits rate. When the quits rate is falling, it indicates that people are not voluntarily leaving their jobs because they need it. We saw the quits rate spike during the pandemic for a variety of reasons, but one reason was the wealth effect. People had sufficient stimulus funds and were spending less. They could afford to quit.

Well this month, we saw the quits rate go up for the first time since May 2023. Another indicator that suggests that the economy remains relatively strong, and so does the labor market.

So the fear that the Fed had about the jobs market being weak is subsiding. During his interview, Chair Powell mentioned the resilience of the economy and the job market multiple times.

The implication of this is that we may be destined for a shallower rate-cutting cycle. If we do see inflation remaining sticky, and perhaps even inching up somewhat, the backdrop of a resilient labor market will allow the Fed to slow down and re-evaluate their stance on what is more important - tackling inflation or saving the labor market.

Closing Thoughts - Revised Projections

I have to admit that one of the biggest surprises of the year for me was the Fed's jumbo rate cut of 50 basis points, and part of that was the labor market weakness.

However, when we looked through the data, it was surprising to us because we didn't think that the labor market was as weak as everybody was saying.

Sure there were increases in unemployment, but layoffs were still low to a large extent, and much of the weakness that we were seeing, in my opinion, was the labor market coming back into better balance.

There was a lot of job openings more than needed and there was a bit of over-hiring in the post-pandemic era. And a lot of that moderating instead of actual weakness.

The last couple of data points seemingly show the same story. We are starting to see upward revisions and that the labor market remains relatively stable.

We will see what 2025 holds for us.

This Fed meeting in December comes with the Summary of Economic Projections and we're likely to see some downward adjustments to rate cuts for next year. The key will be to look at whether we get a higher terminal rate. Personally, I think that this is a plausible scenario.

Have a safe trading week out there!

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