Jobs growth rises more than expected in November; unemployment rate ticks down (DXY)

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U.S. nonfarm payrolls increased by 199K in November, topping the +180K expected and increasing from 150K in October, which was unrevised from its initial release.

Health care (+77K) and government (+49K) sectors saw job gains during the month. The number of jobs in manufacturing (+28K) also rose as auto workers returned from their strikes against the three big U.S. automakers. Retail trade (-38K) employment fell.

Unemployment slipped to 3.7% vs. 3.9% expected and 3.8% in October.

SA Analyst David Alton Clark said the slightly stronger-than-expected headline number was to be expected with the auto and Hollywood strikes ended. That brings attention to wage growth, which came in up 0.4% M/M. “These numbers appear to reinforce ‘soft landing’ narrative,” Clark said. “Regardless, the bottom line is the market has already decided the Fed rate hike cycle is over. At this point, it’s not a question of if, but when, the Fed will begin cutting rates in 2024.”

Traders still overwhelmingly expect the Federal Reserve to keep interest rates unchanged at next week’s FOMC meeting, but sentiment has dimmed a smidge. Market participants put a 98.2% probability of the rate staying at 5.25%-5.50% compared with a 98.8% probability a week ago. The probability of a 25-basis point increase edged up to 1.8% from 1.2% a week ago, according to the CME FedWatch tool.

The labor force participation rate, at 62.8% ticked up from 62.7% in October in line with consensus.

Average hourly earnings increased 0.4% M/M (vs. 0.3% consensus) to $34.10 vs. 0.2% in October, bringing the Y/Y rise to 4.0%, as expected, vs. a 4.1% increase in the prior month.

Joseph Brusuelas, RSM LLP’s chief U.S. economist, sees the wage growth numbers as encouraging. “Best data beneath the topline is 3.4% average annualized pace of wage growth,” he said on platform X. “That cooling is exactly what the Federal Reserve wants to see. It supports a soft landing amid cooler inflation and no need for further rate hikes.”

Fitch Ratings Chief Economist Brian Coulton takes a different view. “With the unemployment rate declining by 0.2pp to 3.7% and average hourly earnings growth picking up to 0.4% month-on-month (from 0.2% in October), this will fuel concerns at the Fed that nominal wage inflation will get stuck at current levels, which are too high from an inflation target perspective,” he said.

David Russell, global head of market strategy at TradeStation, sees the nonfarm payrolls report as a non-event: not strong enough to bring back hawks, but not weak enough to move rate cuts forward. “The main risk is that the Fed won’t see any reason to rush rate cuts. That could trigger some anxiety around next week’s meeting,” he said.

After the report from the U.S. Department of Labor, U.S. equity futures dipped, with Nasdaq futures falling 0.7%, S&P futures down 0.4%, and Dow off 0.3%. 10-year Treasury yield spiked up 8 basis points to 4.23%.