November Jobs Report Shows Hiring On Moderate, Healthy Pace

Hiring bounced back in November from a weak showing in October (which had been depressed by temporary factors), reflecting an economy creating jobs at a healthy pace.

The US gained 227,000 jobs in November, according to the latest report from the Bureau of Labor Statistics. This followed a slightly upward-revised gain of 36,000 in October, when job growth was depressed by two hurricanes and strike activity. Meanwhile, the unemployment rate ticked up to 4.2% from 4.1% in October.

“Nonfarm payrolls paint a picture of job growth which has settled at an equilibrium of moderate, healthy growth,” says Morningstar senior US economist Preston Caldwell.

Even with the rebound in job growth, the Federal Reserve is seen as on track to cut interest rates at its next meeting, scheduled for Dec. 17 and 18. Bond traders are expecting the Fed to lower rates by a quarter point.

November Jobs Report Key Stats

• Total nonfarm payrolls grew by 227,000 versus an upward-revised 36,000 in October.
• The unemployment rate edged up to 4.2% from 4.1% in October.
• Average hourly wages climbed by 0.4% to $35.61 after rising 0.4% in October.

Caldwell points to the three-month growth rate in nonfarm payroll employment, which clocks in at a 1.5% annualized increase with the November data. He calls that “quite healthy.” He estimates that after adjustments are made for routine preliminary benchmark revisions (which won’t be incorporated into the official data until February), we’ll see a three-month growth rate of 1.2%, roughly in line with a 1.1% average growth rate since the second half of 2023.

No Recession Warning in Unemployment Data

The unemployment rate ticked up to 4.2% in November, a reading the BLS characterized as “little changed” from the 4.1% seen in October.

Caldwell notes that the three-month average for the unemployment rate is 4.15%, up 0.4 percentage points from a year ago. The “Sahm rule” posits that whenever that metric rises by half a percentage point or more over one year, the economy enters a recession. “The Sahm rule remains untriggered,” Caldwell observes.

No Signals of Inflation Pressures in Jobs Report

In addition, Caldwell sees good news on the inflation front. “Unemployment has increased by a cumulative 60 basis points, compared with the nadir in early 2023,” he says. “We believe the natural rate of unemployment is closer to 3.5%, which was also the level just before the pandemic—a period evincing little in the way of excess inflation or wage growth. As such, we think the labor market has developed a bit of slack, which should help push down wage growth further.”

In November, average hourly wages climbed by 13 cents, or 0.4%, to $35.61. Over the past 12 months, average hourly earnings have risen 4%.

With the November jobs report, wage growth has risen slightly from the 3.8% year-over-year average in July to September. However, Caldwell notes that this pace is still well under the peak of 5.8% in early 2022. “The overall trend remains downward, as confirmed by various other wage growth measures, such as the employment cost index,” he says.

Fed Seen On Track to Cut Rates

Even with the rebound in job growth and recent inflation data showing that progress toward reducing price pressures has stalled, the central bank is still expected to lower the federal-funds target rate from its current range of 4.50%-4.75% at its upcoming meeting.

According to the CME FedWatch tool, bond funds traders peg the chances of a quarter-point cut at roughly 87%, with about a 13% chance of the Fed leaving rates steady.

“Today’s data shouldn’t have a big impact on the Fed,” Caldwell says. “Much weaker data could have sealed the deal on a rate cut. But unless inflation shows an ugly upward surprise in next week’s [Consumer Price Index] release, we’d expect the Fed to cut in December.”