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What To Expect From The November Jobs Report?

Michael Brown
Senior Research Strategist
Dec 4, 2023
The final US labour market report of 2023 is upon us, with November’s release due on Friday. As traders continue to bet on an aggressive pace of policy easing from the FOMC next year, and consensus rapidly forms around the idea of a ‘soft landing’, market participants are likely to parse the data carefully for any signs of the labour market softening, though any longer-lasting policy implications of the report seem rather unlikely.

Headline nonfarm payrolls are expected to have increased by 180k in November, a marginal uptick from the 150k pace seen in October, and a pace that is little more than a rounding error below the current 3-month average of job gains, which sits at 204k.

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As always, there is a wide range of estimates for the print, between 100k – 240k according to estimates submitted to Bloomberg at the time of writing; I’d argue that a print between around 150k – 210k could be considered as ‘in line’ with expectations, given recent form. Nevertheless, there is perhaps more uncertainty associated with the November NFP print than others in the recent past, with the impact of hiring for Thanksgiving, and the upcoming festive period, often difficult to forecast, along with the return of autoworkers after the resolution of the UAW strikes likely to boost the headline print, at least to some degree.

That said, leading indicators for the print are rather poor, with the employment component of the ISM manufacturing index dipping back below 50 last month – the equivalent services data is due Tuesday – along with continuing jobless claims continuing to rise, touching a near 2-year high in the survey week (that which contains the 12th).

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Taken together, this may point towards a notable divergence between the establishment survey (from which the headline NFP print is derived), and the household survey (used to calculate the unemployment rate).

Risks, therefore, to the consensus of unemployment remaining at 3.9% are likely tilted to the upside, with the FOMC’s end-23 unemployment forecast of 3.8% now looking a little at risk. As always, however, the unemployment rate must always be examined in conjunction with the participation rate, set to remain just shy of cycle highs at 62.7%, along with the underemployment rate, which has steadily risen of late to an 18-month high 7.2%.

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Earnings pressures, meanwhile, are set to remain relatively modest, with average hourly earnings seen rising 0.3% MoM, knocking the annual pace a touch to 4.0%, from 4.1% prior. While such a pace may be a touch too high for comfort among FOMC policymakers, continued real earnings growth should be seen as a positive for the economy, and may in fact help to keep consumer balance sheets in relatively good health throughout much of 2024.

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Despite all of this, there are question marks over the impact that the November jobs report is likely to have for monetary policy heading into 2024. It seems unlikely that the data will tell us anything particularly new – either that the steady softening in the labour market that has been underway for half the year is continuing, or said softening has slowed a touch but will likely quicken once more as the lagged impacts of the FOMC’s tightening campaign continue to bite.

One must also consider market pricing, where futures imply over 125bp of Fed cuts being anticipated next year, with the first such cut fully priced for next May – clearly, a very aggressive pace, particularly with all major measures of inflation remaining substantially above the 2% target.

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While this pricing should be looked at not as a pre-set policy path, and instead seen as a representation of the distribution of probabilities associated with the economy over the next 12 months, the bar for a further significant dovish repricing seems a relatively high one, even if the data were to miss expectations. The bar for a more hawkish repricing also seems rather high, especially considering the continued disinflation seen in the US economy.

Consequently, it may well be the case that the market implications of the NFP print are relatively limited, particularly when one considers the typically light volumes and thin liquidity associated with this time of year. Barring any knee-jerk move over the release itself, then, it seems unlikely that the jobs report will derail markets from what is becoming a well-embedded ‘path of least resistance’ – softer USD, higher equities/gold/crypto, and lower Treasury yields.

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