NEW YORK (Reuters) – U.S. job growth accelerated in November and the unemployment rate fell to 3.7% even as more people entered the workforce, pointing to underlying strength in the labor market.
Nonfarm payrolls rose by 199,000 jobs last month, the Labor Department's Bureau of Labor Statistics (BLS) said Friday. Economists polled by Reuters had forecast the creation of 180,000 jobs. About 25,300 members of the United Auto Workers (UAW) union ended their walkouts against Detroit's Big Three automakers on Oct. 31, according to the BLS strike report, while 16,000 members of the actors' union SAG-AFTRA returned to work.
The jobs report suggested that financial market expectations that the Federal Reserve could cut interest rates as early as the first quarter of 2024 were premature.
MARKET RESPONSE:
STOCKS: US stock futures posted a slight loss before stabilizing at 0.14%. BONDS: The 10-year U.S. Treasury yield rose to 4.241% after the report. Two-year yields rose to 4.708%
FOREX: The dollar index rose 0.376%, slightly higher than just before the data was released
COMMENTS:
MATTHEW MISKIN, CO-CHIEF INVESTMENT STRATEGIST, JOHN HANCOCK INVESTMENT MANAGEMENT, BOSTON
“It’s a relatively strong report. The unemployment rate is going down a little. The headline number is stable at around 200,000. A post-strike rebound in manufacturing was seen, which helped move manufacturing jobs back into positive territory. There's been a bit more wage growth and I think that's leading to a rise in 10-year Treasury yields, which equity markets won't be too happy about.”
“I don’t think this gives the Fed an opportunity to pivot. She's not weak enough…Powell will push back on market pricing of rate cuts. He will likely say the Fed will have to stay in a restrictive zone for a long time.”
STUART COLE, HEAD OF MACROECONOMIST, EQUITI CAPITAL, LONDON
The story goes on
“Today's employment report came in hotter than expected, with employment and average monthly earnings above expectations and the unemployment rate unexpectedly falling. The picture that emerges from the Fed's perspective is likely to be one of a labor market that…”remains strong and shows no real signs yet of weakening under the weight of the rate hikes it has implemented so far.”
“In particular, the decline in the unemployment rate will allay any concerns about a recession, and as both wage and income numbers rise, the 'soft landing' narrative remains on the rise.”
“The report is likely to cause some of those predicting an early Fed rate cut next year to reassess their positions, and unless we see a surprisingly large drop in CPI numbers next week, these rate cut expectations will be lower for 1/1. Quarter will probably be priced out now.”
“However, these are just one month's numbers and therefore are unlikely to have any impact on the outcome of next week's FOMC meeting, especially if CPI numbers continue to trend lower next week. Therefore, it is unlikely that the Fed will take excessive action. “We are concerned about the strength of the labor market reported today – we would need a series of similar reports before concerns would be raised.”
TONY ROTH, CHIEF INVESTMENT OFFICER AT WILMINGTON TRUST, PHILADELPHIA
“These numbers today are inflationary and that doesn't mean that from a fundamental perspective this is not completely consistent with the soft landing, because I believe it is. But from a short-term technical market perspective, this will be a drag on both stocks and bonds.”
“Pressure is increasing on the Fed to shift to a more accommodative message and these numbers will give the Fed cover to continue its very hawkish approach.”
ALEX COFFEY, SENIOR TRADING STRATEGIST, TD AMERITRADE, CHICAGO
“There was a pretty big downward move in the bond market that pushed yields higher, so that's why we saw the reaction that we're having in the stock market. But I wouldn't be surprised if we see this type of development moving towards flat or even higher intraday just because there was just so much fear about it after the JOLTS number earlier in the week and the disappointing ADP “That this would be a weaker number.”
“This complicates the recent market narrative about Fed rate cuts back in March and you're seeing some of those repricings. It actually went down a little bit, and I don't think that's a surprise because we're actually getting a rate.” If the cut happens in March, you need to see data that confirms the situation is worsening. It’s hard to leave this report like this.”
JAMIE COX, MANAGING PARTNER, HARRIS FINANCIAL GROUP, RICHMOND, VA
“It's a good report. The Fed must be happy with this report because the job market remains strong even as inflation falls. There have been many questions about the Fed's ability to reduce inflation by keeping interest rates higher for longer without hurting the job market. With this report they could even lower interest rates. There could be an initial major reaction from the markets. But I think the idea of not having to raise interest rates any further is more important than not having to lower them.”
BRYCE DOTY, SENIOR PORTFOLIO MANAGER, SIT INVEST, MINNEAPOLIS
“Continued robust labor market data will further reduce inflation as job vacancies are filled. However, the knee-jerk reaction is to seek higher yields out of fear that the Fed might reverse course on raising rates again. A larger labor supply lowers the cost of labor, keeping wage growth at a moderate 4%. With productivity growth at 2%, companies only need to increase prices by 2% to cover increased wages.”
“Solid employment gains combined with faster wage growth than the consumer price index also contribute to the soft landing scenario.”
PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK
“This is a pretty good report, a strong report, not overly strong, but strong enough to perhaps quell the talk of a rate cut soon.”
“I don't think this report changes the fact that the Fed will say in December it won't raise interest rates. They have already completed the rate hikes, but it is certainly a setback in terms of bond market expectations of a rate cut soon by the end of the first quarter of next year.”
THOMAS HAYES, CHAIRMAN, GREAT HILL CAPITAL LLC, NEW YORK
“If you look at the average hourly wage year-over-year, a 4% increase was in line with expectations, which is fine.”
“The drop in overall unemployment to 3.7% just alerts the Fed that things may be looking a little positive and they are definitely pushing for any cuts. The question will be whether she sticks with the increases on the table.”
“Average hourly wages are largely pushed upward by the strike and the UAW resolution, meaning these people went back to work at much higher wages and contract bonuses.”
“That may have skewed some of the data, which the market probably overreacted to a little bit this morning, but it's worth keeping an eye on.”
“Non-farm employment isn’t really a problem if it gets excessively hot.”
BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN “Good news is good news for the economy, but it is bad news in terms of what it could mean for the Fed.” It was a slightly warmer than expected jobs report, but he's not exactly too hot to handle. The biggest surprise was probably the wage increases, but with auto workers returning to the payroll, it shouldn't be all that surprising that we saw a big increase in average hourly wages. The job market is not so much hot as it is thawing from the Corona crisis. Wages don’t fuel inflation, so the Fed should just ignore that and focus on inflation.”
STEPHEN MIRAN, CO-FOUNDER, AMBERWAVE PARTNERS, NEW YORK
“Taken at face value, today's report essentially suggests that the labor market slowdown is slow and gradual, rather than falling off a cliff. So there is some reassurance in that, which of course the market sees as an indication that there is less likelihood or need for the Fed to move aggressively to the dovish side after this.”
(Compiled by the Global Finance & Markets Breaking News team)
Comments are closed.