Private employers added a modest 64,000 jobs in non-farm payrolls November, leaving the unemployment rate of 4.6%, according to the Bureau of Labor Statistics, and fixed-income industry experts are taking the news with a grain of salt, just as Federal Reserve Chair Jerome Powell advised after last week's meeting.
After the Federal Open Markets Committee lowered its central borrowing rate last week, Powell policy rates are now in neutral range, suggesting more compelling information would be needed for more cuts.
Labor weakness will pressure inflation lower (slowly) and justify further cuts.
Fixed-income industry professionals felt that weak labor data would eventually lower inflation and set up further rate cuts, though.
"The labor weakness will pressure inflation lower (slowly) and justify further cuts," according to a statement from Brad Conger, chief investment officer at Hirtle Callaghan, adding that the Federal Funds rate could reach 3% by the end of Powell's term in May 2026. "We remain long duration."
The Fed will not likely give this release much weight, in terms of rate cuts, because of shutdown-related data distortions, according to a statement from Kay Haigh, the global co-head of fixed income and liquidity solutions for Goldman Sachs Asset Management.
"The report on December's employment data, released in early January ahead of the next meeting, will likely be a much more meaningful indicator for the Fed when it comes to deciding the near-term policy trajectory."
The BLS also noted that the number of unemployed people in its November reading, 7.8 million, remained unchanged from September. On a year-over-year basis, however, there were 7.1 million unemployment people, and the unemployment rate from 4.2%, according to the agency.
A wide gap in gains
As for what lays ahead for the employment markets, Troy Ludtka, a senior U.S. economist at SMBC Nikko Securities Americas, found a wide gap in payroll gains for cyclical sectors (+0.5%) such as mining and logging, construction, manufacturing, information services and professional and business services, based on October and November numbers. Acyclical sectors including federal and state government, and the adjacent private education and health services (+5.7%).
"Although October and November saw decent private-sector job gains of +121,000, this was entirely due to the acyclical, government-adjacent private education and health services sector, which added +124,000 jobs!" according to a research note from Ludtka.
"Strength in these acyclical sectors continue to mask weakness in the rate-sensitive cyclical sectors," Ludtka said. "Absent a further decline in long-end interest rates, we expect the divergence between cyclical and acyclical jobs to widen in the months ahead."
Payroll numbers for construction and homebuilding are expected to dip, Ludtka said.
The Fed is running easier monetary policy at a time when inflation is stuck above its target rate,
Anticipate cuts with caution
"Remember, the Fed is running easier monetary policy at a time when inflation is stuck above its target rate," according to a statement from Jack McIntyre, a portfolio manager at Brandywine Global after the FOMC meeting.
He added that budget deficits continue at around 6% for the near future, encouraging the government to maintain a stimulative fiscal policy. Also, tax changes and refunds should boost consumer spending next year, another reason the Fed should pause rate action.
"A pause would allow time for official economic data to catch up and become less influenced by the recent government shutdown," McIntyre said.
