Here's what the market will be looking for in Friday's important jobs report

  • Economists expect the Labor Department to report Friday morning that nonfarm payrolls rose by 190,000 last month, up from 150,000 in October.
  • A hot jobs report could undermine that confidence and dampen the good sentiment on Wall Street.
  • Probably the most important data point outside of the headlines will be wages.

Amazon employees deliver packages on Cyber ​​Monday in New York, United States, on Monday, November 27, 2023.

Stephanie Keith | Bloomberg | Getty Images

At a time when the economy is expected to slow, Friday’s jobs report is expected to show that employers actually picked up the pace of hiring in November.

Not that there’s anything wrong with that. A growing economy is a good thing, and nothing underpins that better than a solid job market. Economists polled by Dow Jones expect the Labor Department to report that nonfarm payrolls rose by 190,000 last month, up from 150,000 in October.

But investors and policymakers expect things to slow enough for the Federal Reserve to at least declare an end to this cycle of interest rate hikes as inflation eases and the employment supply-demand mismatch evens out.

A hot jobs report could undermine that confidence and dampen the good sentiment on Wall Street.

“There is some upside risk due to the return of striking auto workers,” said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research. “So it looks like a stable but slowing labor market.”

Wage growth averaged 204,000 over the past three months, a solid gain but well below the level of 342,000 over the same period in 2022. However, the unemployment rate has risen just 0.2 percentage points to 3.9% over the past 12 months, where it was at the start of the year but still typical of a robust economy.

However, there are a number of dynamics in the current climate that make this week’s report, due out at 8:30 a.m. ET, potentially critical.

Probably the most important data point outside of the headlines will be wages.

Average hourly wages are expected to rise 0.3% from October and 4% over the 12-month period, according to Dow Jones.

The annual average level of hourly wages falls short of the Fed’s inflation target of 2%, but is below its peak of 5.9% in March 2022. To reduce inflation, it is critical to bring wage growth to sustainable levels . Therefore, anything stronger could trigger a market reaction.

“If you’re trying to measure supply and demand, price is probably the most accurate way to look at it, and you know that wage growth has slowed significantly,” Jones said. “So it shows you that supply and demand are getting back on track.”

Outside of wages, the overall unemployment rate could be looked at more closely.

Although the number of unemployed has increased only slightly compared to last year, it is half a percentage point above its recent low of 3.4% in April.

The difference is significant because a tried-and-tested indicator called the Sahm rule shows that the economy is in recession when the three-month average unemployment rate rises half a point from its most recent low.

However, even the author of the rule, economist Claudia Sahm, said there are no guarantees that this will be the case this time, although there are certainly warning signs.

“There’s a logic there that … once the unemployment rate starts going up, it often keeps going up, it gains momentum, and it’s a feedback loop,” Sahm said recently on CNBC. “That’s why a small increase in the unemployment rate can really be bad news because it persists.”

Other data this week showed some fluctuations in the labor market.

The number of job vacancies reached its lowest level in two and a half years, and ADP reported that private sector employment rose only slightly. Although applications for unemployment benefits have declined slightly, they remain high.

But the number of workers returning from strikes in the auto industry and Hollywood could increase November’s total by as many as 38,000, according to Goldman Sachs. In fact, the firm’s economists expect the report to be significantly higher than Wall Street’s estimate – a total of 238,000, which could cause some nerves given its potential to tighten the Fed’s position.

Neil Costa, founder and CEO of recruitment marketing company HireClix, said he has seen a decline in job advertisements.

“We’ve definitely seen a slowdown this year,” he said. “It started at the beginning of the year and we’ve seen without a doubt that people have cut back on their advertising revenue for recruiting efforts.”

However, he said parts of the labor market remained strong, citing healthcare in particular, while noting a slowdown in transportation, logistics and manufacturing. Costa expects the economic slowdown to continue in 2024, although nothing is consistent with a deep recession.

“People are just being extremely cautious at this point,” he said.


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