Source: Economics Group of Wells Fargo Bank, N.A.
Summary
The November employment report signaled that supply and demand in the labor market has come back into balance. Nonfarm payrolls grew a robust 227K in November, rebounding from an October reading that was depressed due to strikes and hurricanes. Over the past six months, nonfarm payroll growth has averaged a solid-if-unspectacular 143K per month. The separate household survey was underwhelming. The unemployment rate rose by one-tenth of a percentage point, the labor force participation rate fell one-tenth, and the underlying details of the survey were indicative of a labor market that continues to lose momentum gradually. Perhaps the only “hot” component of the report was the 0.4% increase in average hourly earnings that pushed the year-ago change for wages back up to 4.0%.
On balance, today’s employment data further reinforces our view that the FOMC will reduce the federal funds rate by 25 bps at its upcoming meeting on December 17–18. We do not think the labor market is positioned to be a source of inflationary pressure headed into 2025. Next week we will receive important inflation data for November from the CPI and PPI, and perhaps unexpectedly hot readings could still derail the FOMC’s rate cut plans. But barring a major surprise, the FOMC is on course to cut rates once more before the year is out.