Economists are abuzz following the release of the surprisingly strong November jobs report. Indeed, the crucial piece of economic data likely upended the growing number of analysts hoping for rate cuts sometime soon.
Nonfarm payrolls climbed 199,000 last month, better than estimates around 190,000. Meanwhile, unemployment fell to 3.7%, again stronger than the predicted 3.9% unemployment.
The potential issue with the November jobs report lies in its strength. Economists were actually holding their breath for signs of a moderating labor market, one that may encourage the Federal Reserve to lower rates heading into the next year.
With interest rates past 5%, many have been hoping for data in support of a dovish pivot since the release of last month’s inflation data, which shows prices may have turned the corner towards the Fed’s 2% goal.
For better or worse, the November jobs report showed the U.S. labor market is still red hot, which likely favors those in the “higher-for-longer” camp regarding interest rates.
“Labor market endurance will lead Fed officials to retain some optionality for future rate hikes, if needed,” noted Jane Oates, president of WorkingNation, an employment education-centered nonprofit. “We expect policymakers will resist talking about rate cuts until early 2024.”
November Jobs Report Hints at “Soft Landing”
While the jobs numbers effectively lower the possibility of a near-term rate cut, that doesn’t necessarily mean the report should be viewed as a net negative for the economy or Wall Street.
Indeed, in a year marred by recession fears, Friday’s data suggests the Fed may pull off a “soft landing.” That is an economic outcome where inflation lowers to Fed-acceptable levels without incurring a recession.
There is a push and pull here, however. Jobs and inflation tend to operate inversely, to some degree. When the labor market is strong, it’s harder for inflation to fall as the level of spending remains elevated. As such, while Friday’s data suggests the economy is still operating efficiently, it also points to potentially stubborn inflation heading into the last leg of the Fed’s inflation fight.
“We maintain our call for the Fed to start cutting rates by mid-year, but it is contingent on inflation continuing to trend lower and further weakening in economic activity,” said Nationwide Chief Economist Kathy Bostjancic.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
