Traders and investors on Wall Street are preparing for another labor market report this week as they figure out whether the labor market has cooled enough to allow the Federal Reserve to pivot — switch from a restrictive to an accommodative monetary policy.
The U.S. Bureau of Labor Statistics (BLS) will release the November nonfarm payrolls report on Friday. It's a monthly survey tallying the net number of jobs the nation's businesses create each month. Jobs are critical in every economy, as they are the primary source of income and consumer spending that drive GDP growth.
Wall Street expects the U.S. economy to have created somewhere between 160,000 and 185,000 jobs in November, based on two forecasts published by Trading Economics. These numbers are slightly above the 150,000 jobs the economy added in October but well below the 297,000 generated in September.
The JOLTS report released by BLS on Tuesday showed that the number of job openings dropped from 9.3 million in September to 8.7 million in October. It's the largest drop since March 2021, well below Wall Street expectations.
If forecasters for the November nonfarm payrolls report turn out to be right, the October report will confirm that job creation is slowing down, supporting the popular Wall Street theme that the U.S. economy is heading to a "soft landing."
That's moderate economic growth and low inflation, an ideal macroeconomic environment for equities.
Meanwhile, Wall Street will look for another labor report scheduled for release on Friday: the November unemployment rate. It's a monthly household survey that tallies the number of people in the labor force without a job but actively looking for one.
Wall Street expects the November unemployment to remain steady at 3.9%.
A steady unemployment rate and a steady labor force participation rate of 62.7% will ease pressure on wages. Markets expect the average hourly earnings to rise at an annual rate of 4%, down from 4.1% in the previous month.
If these forecasts are correct, they will ease concerns about a price-wage spiral at the Federal Reserve, making it more likely that it will leave the Federal Funds rate unchanged in the next monetary policy meeting.
"If the current trends continue, the lagging impact of the Fed tightening will cool the labor market in 2024," Niladri Mukherjee, chief investment officer at TIAA Wealth Management, told International Business Times.
"The pace of job creation is slowing while the number of new and existing jobless claims are rising," he added. "If pricing power comes under pressure in the next quarter or two, employers may need to find savings in their labor expenses and could increase layoffs. Wage growth should also continue to moderate, which should help to cool service sector inflationary pressures."
Still, they could be surprises. Oliver Rust, head of product at independent economic data aggregator Truflation, sees private employment as incredibly resilient.
"The latest live Truflation data shows that private employment is currently sitting at 129,343,000 — the highest number so far this year," he told IBT. "Though this doesn't reflect the entire market, it makes up a large percentage of the overall U.S. jobs market."
In addition, Truflation's live labor market data reveal that total labor separations have fallen to the lowest level in a year, down 6.4% from the same time last year.
"The number of hires, meanwhile, has been on the rise again in recent months, up from 5,822,000 in July to 5,871,000 in November," Rust explained. "Overall, the labor market remains strong, and we don't expect to see it weakening significantly in the final month of 2023 or reaching the 4% forecast for Q4."
Joseph Camberato, CEO of National Business Capital, is skeptical of labor market forecasts in the post-Covid-19 world.
"Navigating economic data can be like reading tea leaves — small swings might seem major, but the reality on the ground can be very different," he told IBT.
Camberato bases his skepticism on the transformation of the job market, especially with the work-from-home wave that's been going strong for two years.
"Employees today want different things than they did ten years ago, which might be why the job market is hanging in the balance," he said. "Plus, several companies are calling staff back to the office, so it's no surprise if some are jumping ship in search of jobs with remote options."
