Employment report November 2024

Beneath the jobs rebound, cooling conditions and slower labor supply

• The November employment report showed a broad-based but temporary rebound in payroll gains of 227,000 as disruptions from strikes and hurricanes faded. However, weaker household survey data confirmed labor market conditions are undeniably cooling with the unemployment rate rising to 4.25%. And slower labor supply dynamics — the labor force participation rate fell again in November — may help explain why wage growth has remained sticky around 4%. 
   
• The private sector added a strong 194,000 jobs, and the government sector gained 33,000 jobs. Hiring among goods-producing industries revived amid rising payrolls in manufacturing (reflecting a temporary boost from the return of striking workers) and a modest increase in construction employment. Job creation in the services sector picked up markedly led by stronger hiring in health care and leisure and hospitality as well as modest rebounds in finance and business services. As anticipated, the retail sector shed workers amid weak holiday hiring. 
   
• Household data was decidedly less encouraging. The unemployment rate rose 0.1 percentage point (ppt) from 4.15% to 4.25% in November, in line with its peak reached in July. Meanwhile, the labor force participation rate ticked down to a six-month low of 62.5%, though participation among the key prime-age cohort (25- to 54-year-olds) held steady at 83.5%. Recent data points to moderating immigration flows and a restrained labor supply, which could help explain why the moderation in wage growth has stalled in recent months. 
   
• On the wage front, average hourly earnings were again stronger than expected, rising 0.4% month over month and keeping wage growth steady at 4% year over year. Given the solid uptrend in productivity growth in recent years, wage growth is arguably below the pace consistent with 2% inflation. Looking ahead though, the prospects of reduced immigration under President-elect Donald Trump’s administration represents an upside risk to the wage growth outlook as a restrained labor supply will likely fuel renewed wage inflation pressures.
   
• With business leaders confronted by persistent cost pressures, slower final demand growth and increased policy uncertainty, we foresee continued strategic resizing decisions, wage growth compression and efforts to drive stronger productivity growth. Yet, we don’t anticipate a broad-based employment pullback given historically low layoffs and resilient economic conditions. We foresee the unemployment rate rising further toward 4.3% by year-end and 4.5% in 2025.
   
• Going forward, policymakers at the Fed will tread carefully. As Fed Chair Jerome Powell noted this week, a resilient US economy means the Fed can afford to be a little more cautious with its rate-cutting cycle. Given cooling labor market conditions, strong productivity growth and moderating inflation trends, we continue to expect a 25 basis points (bps) rate cut by the Fed at the December 17–18 policy meeting. Thereafter, we believe the Fed will decide to slow the recalibration process as policymakers feel their way to a neutral policy stance and navigate potential policy shifts and the associated upside risks to the inflation. We see a rate cut at every other meeting in 2025, for a total of 100bps of easing.