The November jobs report presented a nuanced picture of the U.S. labor market, revealing a softening trend but not yet providing a sufficient impetus for the Federal Reserve to alter its monetary policy. The Bureau of Labor Statistics reported that the economy added 64,000 jobs during November, a significant rebound from the net loss of 105,000 jobs experienced in October. This resulted in an increase in the unemployment rate to 4.6%, the highest level observed since September 2021. “We do not think this was weak enough to spur another near-term rate cut,” stated Krishna Guha, head of global policy for Evercore ISI. “The data will have to come in appreciably worse than expected to deliver another cut. The Oct-Nov print does not meet that test in our view, though the Fed will not be complacent and will be very attentive to what December brings.”
Stephen Brown, economist for Capital Economics, echoed this sentiment, expressing skepticism that the report would be sufficient to prompt the Federal Open Market Committee (FOMC) to resume interest rate cuts at its upcoming meetings. The October-November data fall short of the threshold needed to convincingly demonstrate a significant deterioration in the labor market.
Historically, a report like this would have prompted immediate concern among Fed officials regarding the health of the job market, potentially leading to a reduction in interest rates. However, economists and Fed observers are urging caution in interpreting these numbers, acknowledging potential distortions introduced by the recent government shutdown, which persisted throughout October and into November. The shutdown’s effects were particularly evident in the October employment figures.
The Labor Department has cautioned that the data carries elevated standard errors, primarily due to factors such as reduced survey responses, modifications in composite weighting methodologies, and an analysis period extending over two months rather than the traditional one-month timeframe. These methodological adjustments contribute to the inherent uncertainty surrounding the data’s reliability.
While the unemployment rate climbed to 4.6% – a historically noteworthy statistic – it may have been largely influenced by the impact of government jobs cuts. These cuts were anticipated following the numerous resignations taken by federal employees earlier in the year, which ultimately concluded on October 1, coinciding with the reported data. Government employment decreased by 162,000 in October, and an additional 6,000 jobs were shed in November. Federal government employment has declined by 271,000 since reaching its peak in January.
Asked about the rising unemployment rate, the president’s National Economic Council Director Kevin Hassett noted that labor participation also increased in November. “For those two things to happen probably what’s going on is the 250,000 federal government workers who took the buyout are staying in the labor force and looking for work,” he stated.
Fed Chair Jay Powell cautioned last week that the Fed would need to exercise careful judgment when evaluating the jobs data. “There are very technical reasons about the way data are collected in some of these measures, both in inflation and in the labor market, so that the data may be distorted. And not just sort of more volatile, but distorted. ‘We’re going to have to look at it carefully and with a somewhat skeptical eye.’”
Powell indicated that monthly payroll growth could be overstated by 60,000 and that job growth has been closer to -20,000 per month. “The payroll data likely reaffirmed the call of those that voted to reduce the policy rate at the December meeting,” said Joe Brusuelas, chief economist for RSM. "Often late in business cycles, the BLS tends to overestimate hiring only to revise first guesses lower in ensuing benchmark revisions. If that is the case, then the door is open to a near-term rate cut, especially if the January employment data looks weak.”
Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, suggested that the data represented a “gift” for those advocating for continued interest rate reductions. “Labor market softness is real, but there’s no indication the broader economy has been derailed,” she stated.
Jennifer Schonberger covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X@Jenniferismsand onInstagram.Click here for the latest economic news and indicators to help inform your investing decisionsRead the latest financial and business news from Yahoo Finance
