The November unemployment rate rising to 4.6% comes from the separate household survey. This was not conducted in October due to the government shutdown, but this reports that the number of people classifying themselves as unemployed rose nearly 230,000 since September, while those classifying themselves as employed rose by less than 100,000. Meanwhile, wage rates continue to slow with average hourly earnings rising 3.5% year-on-year, which is the weakest in over four years.
The Federal Reserve’s Beige Book suggested that “employment declined slightly over the current period with around half of Districts noting weaker labour demand.” This jobs report is consistent with that when we take the three-month average of 22,000 for non-farm payrolls and subtract the 60,000 figure the Fed thinks payrolls is overstated by. An average of around -38,000 is going to mean more political pressure on the Fed to take action as we head into an election year.
Chair Powell acknowledged that the jobs market has cooled “maybe just a touch more gradually than we thought”. Well, the unemployment rate is now higher than they projected just last week and with little sign of an imminent turnaround, we continue to favour a 25bp cut in March and a further cut in June. The chart below, showing that workers are deeply pessimistic about the outlook for the jobs market, suggests the risks remain skewed towards more aggressive action. Workers see and feel changes before they show up in the data and, if the relationship holds, would suggest that the Fed could end up having to cut rates below 3%.
