Markets seem captivated by the prospect of future declines in U.S. inflation, Federal Reserve interest rate cuts and no recession. These trades will get a real test next Friday when the Labor Department releases the November employment report, said Scott Anderson, chief U.S. economist at BMO Capital Markets.
The job report is considered the best indicator of the overall health of the economy. Generally, the labor market defied expectations and remained strong all year. This has supported incomes and consumer spending. Below the surface, there are signs the strong payroll gains in the July-September quarter won’t last.
October JOLTS data
Tuesday, 10 a.m. Eastern
In the pandemic-era economy, economists have used JOLTS data (Job Openings and Labor Turnover Summary report) to gauge the relative strength of the labor market. Job openings are expected to cool to 9.4 million in October from 9.6 million in the prior month. There were 10.5 million unfilled jobs in the October last year. The reduction in vacancies has been good news for the Biden Administration and the central bank. Federal Reserve Gov. Chris Waller had argued that vacancies could come down without the unemployment rate spiking. Many didn’t think it was possible.
Avery Shenfeld, chief economist of CIBC Capital Markets, said that the JOLTS data could show a significant drop in October, to 9.2 million openings. That would be a sign of easing of labor market tightness.
November ISM service sector index
Tuesday, 10 a.m. Eastern
Economists expect growth in the service sector to pick up, a bit, to 52.5 in November from 51.8 in the prior month. The index had fallen for two straight months and was at its weakest reading since May. Economists were worried the index might slip into contractionary territory, below 50, where it has not been since December 2022. Any significant slowdown in services spending would lead more economists to forecast a recession next year.
November jobs report
Friday, 8:30 a.m. Eastern
Economists surveyed by the Wall Street Journal expect the U.S. economy added 190,000 jobs in November, up from 150,000 in the prior month.
The unemployment rate is expected to hold steady at 3.9%.
Wages are expected to rise 0.3% in November after a 0.2% gain in the prior month. Still, the year-over-year gain in wages is expected to soften to a 3.9% rate from 4.1% in October. That fits with the picture of softening inflation.
Economists said some of the strength will come from returning strike workers.
The data can also be skewed by holiday season hiring, which is expected to weaken this year.
Richard Moody, chief economist at Regions Financial Corp., thinks the stronger headline payroll growth will mask a cooling in demand for labor.
“Beneath what remains a considerable volume of noise in the data, it is clear the trend rate of job growth continues to slow, but it is important to note that this slowdown has thus far been solely a function of a diminished rate of hiring, as opposed to a rising rate of layoffs. Should that pattern change, it would be a most worrisome sign for the broader economy,” Moody said.
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