US Employment Report: The fog is clearing but crosswinds persist
The Bottom Line:
Today’s double payroll report was noisy but showed a continued weakening in the labor market. November payrolls reported above consensus, adding 64k jobs but the unemployment rate ticked higher as DOGE cuts in October (-162k decline in Federal govt in Oct) and a surge of re-entrants in November added to the ranks of unemployed. The uptick in re-entrants can be viewed as relatively benign – they are less impactful to the macro backdrop vs job losers because their flows do not represent a loss of income and spending power. At the same time, the inability of those re-entrants to find jobs suggests peak seasonal hiring season is weaker than typical, and the labor market continues to suffer from uncertainty. We continue to see mixed signals from multiple data sources, and we caution reading too much into a single data point in today’s report.
Here’s what stood out to us in this morning’s report:
1) Unemployment rate jumped to 4.6% – but this was largely a re-entrants story
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While this morning’s upside surprise to the unemployment rate – to 4.6% – garnered attention, the details were reassuring. The uptick was entirely driven by re-entrants and workers on temporary layoff. In fact, permanent layoffs ticked lower.
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Similar to what we have seen previously, younger workers were most affected by the uptick in the UER. Interestingly, in November it was teens aged 16 to 19 who saw the most pronounced leap in the UER – to 16.3% – the highest for that age group since 2020. The unemployment rate ticked lower for those aged 20 to 24 and prime-age UER ticked up slightly to 3.9% which is historically low but still the highest in four years.
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It was the uptick in U6 unemployment – that moved notably higher to 8.7% from 8.0% in September. Three-quarters of the uptick in U6 unemployment can be attributed to those working part time for economic reasons. But the aggregate hours index in payrolls suggests this stems from re-entrants who could only find part-time work, not full-time workers losing hours.
2) Employment growth looks firm in November, but likely tracking below breakeven heading into 2026
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The reality remains that it is becoming increasingly difficult to gauge what constitutes a favorable NFP print. It is important to remember that the preliminary QCEW benchmark revisions earlier this year suggest payroll growth is on average ~70K lower than what is currently being published. With this in mind and in the context of our estimate of breakeven employment, at 40K, we expect to see that payroll growth is tracking just slightly below breakeven when we get revisions in the February report (released in March).
3) Trade-exposed sectors continue to shed jobs in November
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We continue to see the majority of job gains concentrated in sectors benefiting from structural growth – like health care and social assistance employment (+64K in November), bolstered by an aging population.
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Cyclically-exposed sectors, on the other hand, have posted weaker job growth. In November in particular, we saw services sector employment (excluding health care and social assistance and government) shed ~17K jobs. Previously, we had witnessed notable strength in leisure and hospitality but we saw a retracement in November. Trade-exposed sectors like transportation and warehousing and wholesale trade shed jobs.
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Goods-sector employment was stronger in November but this was entirely a story of strength in the construction sector. The trade-exposed manufacturing sector continued to shed jobs.
4) Government employment impacted by DOGE cuts in October
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The (delayed) October NFP print (-105K) was distorted by a -162K decline in federal government jobs. Employees who elected federal buyout packages through DOGE were kept on payrolls through September and fell off in October.
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Looking at private payroll gains for October, job growth ticked up a more modest +52K.
Beneath the Surface:
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The labor force participation ticked up to 62.5% in November from 62.4% in September, despite a surge in retirements.
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Roughly 24% of unemployed workers are long-term unemployed, this is still in-line with what we had witnessed in prior months.
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On a monthly basis, average hourly earnings rose +0.1% m/m in November – below consensus of +0.3%.
About the Authors
Mike Reid is a Senior U.S. Economist at RBC. He is responsible for generating RBC’s U.S. economic outlook, providing commentary on macro indicators, and producing written analysis around the economic backdrop.
Carrie Freestone is an economist and a member of the macroeconomic analysis group. She is responsible for examining key economic trends including consumer spending, labour markets, GDP, and inflation.
Imri Haggin is an economist at RBC Capital Markets, where he focuses on thematic research. His prior work has centered on consumer credit dynamics and treasury modeling, with an emphasis on leveraging data to understand behavior.
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