A muddled message from the November jobs report

Summary

The most closely watched numbers in the November employment report were strong. Job growth in November came in above consensus expectations, rising 199K. Even with the beginning and end of major strikes injecting some noise into monthly payroll changes since late summer, payroll growth has averaged 194K since August. The unemployment rate fell two-tenths of a percentage point to 3.7% in November, with robust labor force growth pushing the labor force participation rate back up to its cycle-high of 62.8%. Average hourly earnings growth also picked up a touch, rising 0.4% in November.

Yet despite the favorable monthly readings in November, the labor market clearly has cooled over the course of the year. Employment growth continues to come down from its post-pandemic boom, wage growth is slowing and labor turnover has receded as greener pastures at a new employer are not quite as enticing as they were earlier in the expansion. Beneath the headline figures, there are signs that the margins of the labor market are deteriorating, with job gains being more narrowly driven, temporary help employment declining and laid off workers taking longer to find new employment.

As we look to 2024, an improving inflation outlook and gradually softening labor market present balanced risks for the FOMC. We believe a continuation of these two trends will induce the FOMC to begin cutting the fed funds rate next summer.

Payroll growth modestly tops expectations

The final employment report of 2023 came in a bit stronger than expected, although not enough to change the picture of a slowly softening jobs market. Nonfarm payrolls increased by 199K in November, just 16K above the Bloomberg consensus forecast for a 183K gain. Revisions to job growth in the prior two months were relatively modest, with a net downward adjustment of 35K. The end of the United Auto Workers and Screen Actors Guild strikes flattered the November payroll numbers after weighing on them over the previous few months. Motor vehicle and parts manufacturing employment jumped by 30K in the month, while motion picture and sound recording industries added 17K net new jobs.

Looking through the strike-induced noise, employment growth was carried by a handful of industries in November. Health care employment posted another strong gain of 77K, while government employment growth continued its hot streak with 49K new jobs added in the month. Job growth was also solid in social assistance (+16K) and bars and restaurants (+38K). Holiday hiring was underwhelming with a 38K decline in retail employment and a smaller 5K dip in transportation and warehousing. Employment in construction, professional and business services and financial services were all roughly flat in the month.

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