A Messy U.S. Jobs Report
Friday's US labour market report, referencing November, was rather messy.
Headline nonfarm payrolls rebounded, as expected, from a weather-affected October, rising?+227k, with a solid?+56k net upward revision to the prior two points adding to the good news here. Meanwhile, earnings growth remains of little concern to the FOMC, as average earnings rose 0.4% MoM, and 4.0% YoY.?
The household survey, however, is somewhat more concerning, with unemployment having risen to 4.2%, just 0.1pp below the cycle highs seen in July, and even closer to said highs on an unrounded basis. This rise in unemployment, of course, was accompanied by falling labour force participation which, at 62.5%, slipped to its lowest level since May. A 'pinch of salt' is needed here, however, taking into account the volatile nature of the HH survey this cycle, and falling survey response rate.
In summary, we have - a strong NFP print, solid earnings growth, and a soft unemployment figure.?
What does this rather murky mix mean for the FOMC? While, of course, it is impossible to say with certainty what the Committee will do next, the 'path of least regret' is likely to be one where a 25bp cut is delivered at the December meeting. Although disinflationary progress remains bumpy, and upside inflation risks are set to emerge in 2025 at the beginning of Trump's presidency, it seems plausible that the Committee would seek to deliver a cut now, and a 'skip' later, to preserve the state of the labour market; as opposed to skipping the December meeting, which could pose significant downside risks to the maximum employment side of the dual mandate.
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Michael Brown | Senior Research Strategist at Pepperstone