The jobs report for November provided fresh evidence of softening in the labor market, but it isn’t likely to change the outlook for the Federal Reserve much for now.
The US economy added 64,000 jobs in November, following a net loss of 105,000 in October, as the unemployment rate crept up to 4.6%, the highest level since September 2021.
“We do not think this was weak enough to spur another near-term rate cut,” said Krishna Guha, head of global policy for Evercore ISI. “The data will have to come in appreciably worse than expected to deliver another cut. The Oct-Nov print does not meet that test in our view, though the Fed will not be complacent and will be very attentive to what December brings.”
Stephen Brown, economist for Capital Economics, also said he doubts the report “will be enough for the FOMC to consider resuming interest rate cuts at the next couple of meetings.”
Read more: How jobs, inflation, and the Fed are all related
Ordinarily, the data might have given Fed officials new concerns about the health of the job market and prompted them to cut interest rates further. But economists and Fed observers say caution is warranted in assigning significance to the numbers, given potential distortions in the data due to the government shutdown that lasted throughout October and into November.
The Labor Department warned that the data has higher standard errors than usual due to a host of factors, including lower survey response, composite weighting changes, and the use of a two-month period of analysis rather than a one-month period.
While the unemployment rate jumped to 4.6% — normally a worrying sign — it may have been driven by government jobs cuts, which spiked as expected as federal employees who opted to take resignations earlier this year finally rolled off payrolls on Oct. 1.
Government jobs fell by 162,000 in October on account of the deferred resignations, with an additional 6,000 jobs shed in November. Federal government employment is down by 271,000 since reaching a peak in January.
Asked about rising unemployment, the president’s National Economic Council Director Kevin Hassett noted that labor participation also rose in November. “For those two things to happen probably what’s going on is the 250,000 federal government workers who took the buyout are staying in the labor force and looking for work,” he said.
Fed Chair Jay Powell cautioned last week that the Fed would need to be careful in assessing the jobs data. “There are very technical reasons about the way data are collected in some of these measures, both in inflation and in the labor market, so that the data may be distorted. And not just sort of more volatile, but distorted,” he said. “We’re going to have to look at it carefully and with a somewhat skeptical eye.”
Powell noted that he thought monthly payroll growth could be overstated by 60,000 and that job growth has been closer to -20,000 per month.
“The payroll data likely reaffirmed the call of those that voted to reduce the policy rate at the December meeting,” said Joe Brusuelas, chief economist for RSM. “Often late in business cycles, the BLS tends to overestimate hiring only to revise first guesses lower in ensuing benchmark revisions. If that is the case, then the door is open to a near-term rate cut, especially if the January employment data looks weak.”
Ellen Zentner, chief economic strategist for Morgan Stanley Wealth Management, said she thinks the data was a “gift” for those looking for more rate cuts.
“Labor market softness is real, but there’s no indication the broader economy has been derailed,” she said.
Jennifer Schonberger covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.
Click here for the latest economic news and indicators to help inform your investing decisions
Read the latest financial and business news from Yahoo Finance