US jobs report November: Payrolls and labor participation rise, unemployment falls

The US economy added 199,000 new jobs in November. 

This is what a “soft landing” employment report looks like - strong enough to indicate that the economy has good momentum but not so strong as to stoke worries about inflation. 

This will only serve to reinforce the Fed’s decision in November to stop hiking rates. Now, the market is starting to focus on the potential for rate cuts in 2024. 

So, do 199,000 new jobs make rate cuts more or less likely? And what does that mean for the stock market looking forward? 

Job gains solid, boosted by strikes ending

Overall, a 199,000 job gains figure is right where we want it. However, it is worth noting that some details suggest that the headline figure may have overstated the reality. 

First, the prior two months were revised downward by 35,000. One way to think about revisions is in terms of total employment vs. prior expectations. 

For this month, Bloomberg’s economist survey indicated expectations were for 185,000 additional jobs. We got 199,000 for November alone, but gave back 35,000 we believed were added in prior months. So, net of that, the economy only had 164,000 more jobs than we thought it did at the end of October.

The other issue is the United Auto Workers strike ending. In October, the number of people employed in “Motor vehicles and parts” manufacturing dropped by 32,000. In November, the number rebounded by 30,000. The October decline and the November increase probably just reflect the start and end of the strike.

While the +199,000 appears as an acceleration from October’s +150,000 gain, it’s more accurate to describe the employment situation as relatively stable.

Unemployment rate falls

The Labor Department actually has two different surveys they use to report on the jobs market. When you hear it reported how many jobs were added in a given period, such as the 199,000 added in November, that comes from the “establishment” survey. I.e., they survey companies and ask how many employees are on the payroll.

The unemployment rate comes from the “household” survey, where they ask individuals if they have a job or not. This is necessary to figure out the unemployment rate since you need to know how many people have jobs and how many people are out of work and looking.

The household survey is known for its volatility, which can be attributed to the numerous challenges inherent in surveying individuals. These challenges include low response rates, question confusion, and potential errors, among others. Yet, this doesn’t stop people from occasionally overreacting to the result. 

Last month, the household survey showed net job losses of 348,000, which caused the unemployment rate to climb to 3.9%, the highest since early 2022.

Those losses vanished this month, as the household survey showed job gains of 747,000, and the unemployment rate fell to 3.7%. In fact, if we look at the establishment and household surveys for all of 2023, we see they tell the same story. Overall job growth was 1.7% in both surveys.

Labor participation rising

Perhaps the best news from this jobs report was growth in the labor force. In this case, the labor force is defined as the total number of people either employed or actively looking for work. In other words, it measures the total number of people who could be working at any given time.

The best way to get non-inflationary economic growth is to have a continuously growing labor force. More people working causes the economy to grow directly while having ample workers prevents the kind of labor market tightness that often causes inflation.

On this front, the US is having a great 2023. So far this year, the labor force has grown by 2.0%, the best growth rate since 2000.

What about Fed rate cuts?

Over the last couple of weeks, various economic data, as well as comments from Fed officials, have fueled speculation that the Fed could cut their target for interest rates as soon as March 2024. Prior to this payroll release, markets were pricing in five Fed rate cuts of 0.25% each by the end of 2024. We can see this by looking at pricing in the futures market for the Fed’s target rate.

Post-payroll report rate cut expectations backed off slightly, with markets now expecting more like four cuts of 0.25% each.

For most of 2022 and 2023, markets were almost entirely focused on the potential for Fed rate hikes. Now that inflation has cooled, we should expect markets to obsess over rate cuts. 

Our take is that rate cuts are indeed likely for 2024, but the timing and number of cuts are very much up in the air. We don’t think the economy has to weaken per se to prompt the Fed to cut. The Fed’s standard economic models will suggest they should lower rates by some degree merely because inflation has improved. 

However, to get more than 2-3 rate cuts next year, the odds are that the economy has to show some additional signs of weakness that we are not seeing today. 

As we said above, this was a solid, if unspectacular, jobs report. But it is not the kind that really compels the Fed to cut aggressively.

If we keep getting jobs reports like this, expect the Fed to cut rates a few times eventually. However, expect it to come in a halting fashion. Contrarily, if job growth slows even mildly from here, we’d expect the Fed to cut more aggressively.