After a storm-induced slowdown in October, the US labor market is set for a significant recovery in November.
Economists are optimistic that the recovery will be rapid, with estimates pointing towards a net gain in jobs of 207.500.
The Bureau of Labor Statistics will release its November jobs data at 8:30 a.m. ET on Friday.
This anticipated recovery contrasts sharply against October’s meager 12,000 job additions, the smallest increase in almost four years.
The two hurricanes that followed each other and a major strike by workers were the main contributors to this poor performance, which economists now consider an anomaly.
Despite the turbulent months, the unemployment rate will remain at 4,1%, which is the same as it has been since September.
Dan North, senior economics for Allianz Trade noted the extraordinary circumstances in October. “I told my reader to disregard last month’s reports,” he said on CNN.
“The BLS admitted that hurricanes and strikes rendered data inconclusive. He said that a substantial rebound in November was not only likely, but rational.
November’s recovery reflects the labor market’s resilience
The expected gains for November suggest a return of the underlying strength of the labor market.
Gus Faucher (chief economist at PNC Financial Group) predicts a job growth of 250.000 positions for the month.
This figure represents a monthly payroll increase of around 150,000 jobs excluding the recovery following October’s anomalies.
Faucher told CNN, “That’s an impressive number.” It reflects a strong labor market that supports income growth which, in turn drives consumer spending.
Several indicators confirm that the labor market is robust.
In recent weeks, unemployment claims have been trending down.
The Job Openings and Labor Turnover Survey for October showed an increase in job openings, from 7.4 to 7.7 millions, exceeding the economists’ expectation of 7.5 million.
Employment trends: Low layoffs, steady hiring
The labor market has remained resilient in the face external pressures.
According to Challenger, Gray & Christmas, the number of layoffs announced in November was 57,727, a modest increase of 3.8% from October.
In October, the rate of layoffs and dismissals remained at 1% — close to a record low.
Faucher said that the labor market is still tight. “Employers hesitate to lay off workers, even when they are cutting back on new hires.”
The number of first-time applications for unemployment benefits increased slightly last week. They reached a six-week-high of 224,000.
The number of people who continue to claim unemployment benefits, which reflects the number of people who receive benefits for a long period, has declined, indicating that there is no significant increase in joblessness.
An increase in voluntary resignations is another positive sign.
The number of workers quitting jobs increased by 228,000 to 3.3 millions in October, but it is still below the levels seen a year ago.
This shows that employees are confident enough to look for better opportunities. A strong labor market is characterized by this.
Federal Reserve policy: Rate reductions likely to continue
The Federal Reserve will not change its current policy of interest rate reductions despite the expectations of a strong job growth in December.
According to the CME FedWatch Tool, market participants have priced in a 74% chance of a rate reduction of a quarter point at the Fed’s meeting in December.
Russ Brownback is the head of global macro-positioning at BlackRock and he views the Fed’s policy as restrictive.
He explained that “the real policy rate is higher today than it was at mid-2023 even though inflation has been significantly reduced.”
The Fed’s preferred measure of inflation, the core personal expenditures price index, indicated a 2.8% increase year-over-year through October.
Although this is lower than its peak in 2022, it remains above central bank’s 2% goal.
Fed Chair Jerome Powell acknowledged this balancing act in a recent appearance during The New York Times DealBook Summit.
Powell said, “We’re still not there with inflation.” Powell said that the economy was in good shape and that we were on a path towards bringing rates down to a neutral level.
Stock market strength and economic optimism
Investor sentiment has been boosted by the strong labor market and resilient economic conditions.
This week, major stock indices including the Dow Jones Industrial Average, S&P 500 and S&P 1000 reached record highs.
The S&P 500 index has risen 27.6% in the past year, largely due to robust corporate earnings and consumer expenditure.
Yardeni Research is now more optimistic about the future of the labor market.
The firm expects a monthly average job growth of 200,000 in the next quarter. It cites improved hiring trends, as the economy returns to normalcy after the pandemic.
In a recent report, Yardeni Research noted that “we’ve argued for the past year that the labor markets were recalibrating after the unsustainable hiring spree incurred during the pandemic.”
We are now seeing signs of renewed energy.
This post Friday’s job report: likely outcome and reasons it may not stop Fed December rate cut may be modified based on updates
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