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US November payrolls growth hurts case for early ’24 Fed cuts

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NEW YORK (Reuters) – U.S. job growth accelerated in November and the unemployment rate dropped to 3.7% even as more people entered the labor force, pointing to underlying strength in the labor market.

Nonfarm payrolls increased by 199,000 jobs last month, the Labor Department’s Bureau of Labor Statistics (BLS) said on Friday. Economists polled by Reuters had forecast 180,000 jobs created. About 25,300 members of the United Auto Workers (UAW) union ended their work stoppages against Detroit’s “Big Three” car makers on Oct. 31, the BLS strike report showed, while 16,000 members of the SAG-AFTRA actors union returned to work.

The employment report suggested that financial market expectations that the Federal Reserve could pivot to cutting rates as soon as the first quarter of 2024 were premature.

MARKET REACTION:

STOCKS: U.S. stock futures added to a slight loss then steadied to stand 0.07% easierBONDS: U.S. Treasury 10-year yield rose to 4.231% after the report. Two-year yields rose to 4.677%

FOREX: The dollar index was up 0.24%, up a bit more than just before the data

COMMENTS:

BRYCE DOTY, SENIOR PORTFOLIO MANAGER, SIT INVEST, MINNEAPOLIS

    “Continued robust jobs data will continue to bring inflation down as open positions get filled. However, the knee jerk reaction is for higher yields out of fear that the Fed may do an about face hint about raising rates again. More labor supply reduces the cost of labor which is keeping wage growth at a tame 4%. Given a 2% growth rate in productivity, companies only need to raise prices 2% to cover increased wages.”

    “Solid job increases combined with wages growing faster than CPI also helps the soft landing scenario.”

PETER CARDILLO, CHIEF MARKET ECONOMIST, SPARTAN CAPITAL SECURITIES, NEW YORK

    “This is a fairly good report, a strong report, not overly strong but strong enough to perhaps deflate the talk of a early rate cut.”

    “I don’t think this report changes the fact that the Fed is going to say on hold in December. They’re done raising rates, but it certainly is a pushback in terms of the bond markets’ expectations of an early rate cut in end of the first quarter next year.”

THOMAS HAYES, CHAIRMAN, GREAT HILL CAPITAL LLC, NEW YORK

“If you look at average hourly earnings year on year up 4% was in line with expectations, that’s okay.”

    “The headline number of unemployment going down to 3.7% it just keeps the Fed on higher alert that maybe things are running a little bit on the warm side and certainly it pushes out any type of cuts, the question will be whether it keeps any hikes on the table.”

   “Average hourly earnings is largely going to be skewed by the UAW strike and resolution to the upside, meaning these people went back to work and they went back to work at much higher wages with signing bonuses.”

   “So that may have skewed some of the data that the market is probably overreacting to a little bit this morning, but it’s worth keeping an eye on.”

   “The nonfarm payrolls number (is) not really a problem coming in excessively hot.”

BRIAN JACOBSEN, CHIEF ECONOMIST, ANNEX WEALTH MANAGEMENT, MENOMONEE FALLS, WISCONSIN“Good news is good news for the economy, but it’s bad news for what it might mean for the Fed. It was a slightly warmer than expected labor market report, but it isn’t exactly too hot to handle. The biggest surprise was probably in the wage gains, but with auto workers coming back onto payrolls it really shouldn’t be too surprising that we saw a big pop in average hourly earnings. The labor market isn’t too hot so much as it is thawing-out from the COVID freeze. Wages aren’t stoking the flames of inflation, so the Fed should just ignore this and focus on inflation.”

STEPHEN MIRAN, CO-FOUNDER, AMBERWAVE PARTNERS, NEW YORK

“Taken at face value, today’s report is basically indicating that the slowdown in the labor market is slow and gradual and not falling off a cliff. So, there’s some reassurance in that, which of course, the market is taking as indicating less likelihood or less need for the Fed to pivot aggressively to the dovish side after this.”

(Compiled by the Global Finance & Markets Breaking News team)

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