The upcoming release of the November employment report by the Labor Department is expected to test the trades that have been focused on future declines in U.S. inflation, Federal Reserve interest rate cuts, and the absence of a recession. Scott Anderson, Chief U.S. Economist at BMO Capital Markets, highlights the significance of this report as it is considered the best indicator of the overall health of the economy.
Strong Labor Market Throughout the Year
Throughout the year, the labor market has defied expectations and remained robust, which has had a positive impact on incomes and consumer spending. However, beneath the surface, there are indications that the strong payroll gains seen in the July-September quarter may not be sustainable.
JOLTS Data: Gauging Labor Market Strength
In assessing the relative strength of the labor market, economists have been relying on Job Openings and Labor Turnover Summary (JOLTS) data in the pandemic-era economy. It is anticipated that job openings will decrease to 9.4 million in October from 9.6 million in the previous month. Notably, this represents a decline from 10.5 million unfilled jobs in the same period last year. This reduction in vacancies has been a positive development for both the Biden Administration and the central bank, as Federal Reserve Gov. Chris Waller had previously proposed that vacancies could decrease without causing a spike in the unemployment rate - a concept that many doubted could be achieved.
Potential Easing of Labor Market Tightness
Avery Shenfeld, Chief Economist of CIBC Capital Markets, suggests that the JOLTS data might reveal a significant drop in job openings for October, possibly decreasing to 9.2 million. This would serve as an indicator of a potential easing of labor market tightness.
November ISM Service Sector Index
The November ISM service sector index will be released on Tuesday at 10 a.m. Eastern Time.
Economic Growth in the Service Sector Expected to Improve
Economists are anticipating a slight uptick in growth in the service sector for the month of November. The projected index is expected to be at 52.5, compared to 51.8 in the previous month. This comes after a two-month decline, with the index reaching its lowest point since May. The concern among economists was that the index might fall below 50, indicating contractionary territory. Such a scenario has not occurred since December 2022. If there is a significant slowdown in services spending, it could lead more economists to predict a recession in the coming year.
November Jobs Report
Friday, 8:30 a.m. Eastern
According to a survey conducted by the Wall Street Journal, economists are projecting that the U.S. economy added 190,000 jobs in November, an increase from the 150,000 jobs added in the previous month.
The unemployment rate is expected to remain steady at 3.9%.
Wages are predicted to rise by 0.3% in November, following a 0.2% gain in the prior month. However, the year-over-year wage growth is expected to soften to a rate of 3.9% from the 4.1% seen in October. This aligns with the overall trend of inflation easing.
Economists note that some of the job growth will be attributed to striking workers returning to their positions.
It's important to consider that holiday season hiring may impact the data as it is expected to be weaker this year.
Richard Moody, chief economist at Regions Financial Corp., believes that although there will be stronger headline payroll growth, there is evidence of a cooling demand for labor.
"Despite the noise within the data, it is evident that the trend rate of job growth continues to slow. However, it is crucial to emphasize that this slowdown has primarily resulted from a reduced hiring rate, rather than an increase in layoffs. If this pattern were to change, it would be a troubling sign for the broader economy," Moody explained.
