November jobs report likely to signal a ‘gradual slowdown’ in the labor market

All eyes will be on the November jobs report when it is released Friday morning as investors look for clues about the labor market’s health in the face of higher interest rates and still-high inflation.

The Labor Department’s high-stakes November payroll report, due at 8:30 a.m. ET, is projected to show that hiring increased by 180,000 last month and that the unemployment rate held steady at 3.9%, according to a median estimate by Refinitiv economists.

That would mark a slight increase from the 150,000 gain in October and the typical pre-pandemic monthly increase. However, it marks a decline from the average monthly gain of 258,000 recorded over the previous 12 months.

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“The labor market has not been able to avoid slowing and risks heading in 2024 are still visible on the horizon as unemployment creeps up and concerns about a hard landing persist,” said Daniel Zhao, an economist at Glassdoor. “If resilience was the theme for 2023, it remains to be seen if that theme will persist into 2024.”

A likely burst of hiring in the manufacturing and information sectors – the result of the UAW and SAG-AFTRA strikes both ending – may distort the headline figure in November.

Construction workers are seen on a job site in Miami on May 5, 2023. (Joe Raedle/Getty Images / Getty Images)

The Federal Reserve is closely watching the report for evidence that the labor market is finally softening after months of surprisingly solid job gains as policymakers try to wrestle inflation under control. Although the consumer price index has cooled considerably in recent months, it remains above the Fed’s preferred 2% target, despite 11 interest rate hikes in the span of 16 months.

Slower job growth and further moderation in wage gains on Friday could be a welcome sign for the U.S. central bank, which held interest rates steady for the second straight month in November. Although Fed Chair Jerome Powell has kept the possibility of another rate hike in play this year, most economists believe the central bank is finished with its tightening campaign.

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Average hourly earnings – a key measure of inflation – are expected to increase 0.3% for the month and climb 4% from the same time one year ago.

“Moderating wage growth, along with slower demand for goods and services, easing rent inflation and reduced pricing power should lead to further disinflation and argue in favor of the Fed holding the fed funds rate constant in the coming month,” said Lydia Boussour, senior economist at EY. “But we expect policymakers will resist talking about rate cuts until early 2024.”

The labor market has remained historically tight over the past year, defying economists’ expectations for a slowdown. Although economists say it is beginning to normalize after last year’s blistering pace, it is nowhere near breaking. 

Job seekers visit booths during the Spring Job Fair at the Las Vegas Convention Center in Las Vegas on April 15, 2022. (K.M. Cannon/Las Vegas Review-Journal / Getty Images)

A separate report released Wednesday showed that job openings unexpectedly slowed to 8.7 million at the end of October, the lowest level since March 2021. Before the COVID-19 pandemic began in early 2020, the highest on record was 7.6 million. There are still roughly 1.5 jobs per unemployed American. 

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The data, combined with historically low jobless claims, points to a labor market that is cooling in the face of growing headwinds.