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Nonfarm payrolls rose by a stronger-than-expected 227,000 jobs in November (consensus at 220,000, Federated Hermes at 247,000), with a combined upward revision of 56,000 jobs in September and October. This adjusted gain of 283,000 jobs represents a solid rebound from the storm- and strike-related air pocket the labor market experienced in October, when it posted an adjusted loss of 100,000 jobs.

But there were also pockets of weakness in this morning’s report. Household employment lost a sizable number of jobs for the second consecutive month, the unemployment rate rose to 4.2%, and retailers shed jobs for the second consecutive month amid the critically important holiday shopping season. Consequently, we still expect the Federal Reserve to cut interest by another quarter point at their upcoming policy-setting meeting on December 18.

Wage inflation remains a problem Wage growth remains hot, rising by a stronger-than-expected 0.4% month-over-month (m/m) in November (which annualizes to 4.8%) and by an eight-month high of 4.0% year-over-year (y/y). The Fed is targeting 3%. Moreover, average weekly hours worked ticked up to 34.3 in November, up from a 10-month low of 34.2 in October. Each addition of 0.1 hour worked is the equivalent of adding an estimated 350,000 jobs to the economy. 

Reversal of the impact of storms and strikes The labor market was severely distorted in October by powerful hurricanes Helene and Milton that hit the Southeast. The Bureau of Labor Statistics reported that its response rate for the October jobs survey was roughly half the normal rate and was the lowest level since 1991. More than 512,000 people in nonagricultural jobs couldn’t work that month (compared with the historical average for October of 56,000). Exacerbating the situation were two significant strikes. About 45,000 dock workers at all East Coast and Gulf ports staged a walk-out in early October. That ended shortly with both sides agreeing to a three-month cooling-off period. But that expires January 15, at which point they may strike again. Boeing has since settled its October strike with 33,000 machinists. It appeared to us that October’s dismal labor-market performance would be revised up sharply in coming months, which it has.

Other important labor-market indicators mixed:

• ADP private payroll survey November added a roughly in line 146,000 jobs (consensus at 150,000), down from a six-month high of 184,000 jobs in October. Workers who changed jobs last month saw their wages rise by 7.2% y/y, which is stronger than 6.7% gains in each of the two previous months, but down from a cycle peak of 16.4% in June 2022. Job stayers in November earned a modest 4.8% y/y gain, which was a tick stronger than September and October, but down from a peak of 7.8% in September 2022. 
• Initial weekly jobless claims This high-frequency leading employment indicator declined to 215,000 for the November survey week that ended November 16, a seven-month low. 
• Challenger, Gray & Christmas Employers announced layoffs of 57,727 in November, an increase of nearly 27% from a year ago, though only 3.8% higher than October. More than a third of last month’s announcements were in automotive and technology. 
• Job Openings & Labor Turnover Survey (JOLTS) October job openings rose by 5% m/m to 7.74 million, up from 7.37 million in September, their lowest level since January 2021. But they were still 36% below a record 12.182 million job openings in March 2022. The rate of job openings rose to 4.6% in October, up from a four-year low of 4.4% in September, which is still down from a record 7.4% in March 2022. The ratio of available job openings for every unemployed worker rose in October to 1.1, up from a more than three-year low of 1.08 in September, but still down from a peak of 2.0 in March 2022.

Unemployment and labor impairment rates rise, while participation rate falls Household employment (an important leading employment indicator) lost 355,000 jobs in November, after losing 368,000 jobs in October, but gaining 430,000 jobs in September. As a result, the number of unemployed people rose by 161,000 in November and by 150,000 in October, after declining by 281,000 in September and 48,000 in August. So, the unemployment rate rose to 4.2% in November, up from 4.1% in September and October. That’s just under July’s three-year high of 4.3% and well above April 2023’s 53-year low of 3.4%.

The labor impairment rate also ticked up to 7.8% in November, up from 7.7% in each of the two previous months. But that’s just below its three-year high of 7.9% in August and well above the cycle low (dating back to 1994) of 6.5% in December 2022. 

The civilian labor force declined by 193,000 workers in November, after falling by 220,000 workers in October and adding 150,000 in September. Consequently, the participation rate declined to 62.5% in November, down from 62.6% in October and 62.7% over the three prior months. That compares with a post-pandemic high of 62.8% in November 2023 and a pre-pandemic cycle high of 63.3% in February 2020.

K-shaped recovery gap narrows The unemployment rate for highly educated workers slipped to 2.4% in November from 2.5% in October, up from September 2022’s cycle low of 1.8%. The unemployment rate for less-educated workers declined sharply to 6.0% in November, down from 6.6% in October and 7.1% in August. But that’s still well above its 31-year low of 4.4% in November 2022. 

Sector details:

• Temporary help (an important leading employment indicator) gained 2,000 jobs in November for the second time in the past three months, after losing jobs 29 times out of the previous 32 months. 
• Manufacturing added a weaker-than-expected 22,000 jobs in November (consensus at 30,000), but that was much better than the job losses this sector posted in four of the previous five months.
• Construction added 10,000 jobs in November, up from 2,000 in October, compared with stronger gains of 26,000 in September and 28,000 in August.
• Retail lost jobs for the fifth time in the past six months, losing 28,000 jobs in November and 4,000 in October, which mark the start of the important Christmas season. 
• Leisure & hospitality rebounded strongly, adding 53,000 jobs in November, after adding a muted 2,000 workers in October but a robust 61,000 in September. 

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