Nonfarm payrolls are up 227,000 in November after upward revisions to 36,000 in October and 255,000 in September. The net upward revision to the prior two months is 56,000. The November nonfarm payrolls increase is somewhat above the consensus of up 211,000 in the Econoday survey of forecasters. As expected, payrolls recovered from the impacts of severe weather and strike activity in the prior month. For the fourth quarter to date, the average monthly increase in nonfarm payrolls is 132,000 compared to 159,000 in the third quarter,147,000 in the second quarter, and 267,000 in the first quarter 2024. The pace of payroll growth has cooled but remains at a level this is historically able to absorb new workers coming into the labor market and those who have been laid off.

Private payrolls are up 194,000 in November. Goods-producers' payrolls are up 34,000 with modest gains of 22,000 in manufacturing, 10,000 in construction, and 2,000 in mining and loggings. Service-providers' payrolls are up 160,000 on broad-based gains. The largest share of new jobs in the service sector are education and health services at up 79,000 or about 49 percent of the sector, and leisure and hospitality at up 53,000 or about 33 percent of the total for services. Government jobs are up 33,000 with gains of 11,600 in state education and 5,500 in local education.

Average hourly earnings are up 0.4 percent in November from the prior month and up 4.0 percent from November 2023. This is the same increase as seen in October. Moderation in the pace of increases for average hourly earnings appears to have reached a plateau. Businesses are still having to offer wage increases to find the workers they need who have the right skills and/or experience.

The unemployment rate is up a tenth to 4.2 percent in November and the U-6 unemployment rate the broadest measure of unemployment is also up a tenth to 7.8 percent. The labor force decreased in November, down 193,000 to 168.286 million with the number of employed down 355,000 and the number of unemployed up 161,000. A smaller labor force led to a one-tenth tick lower for the labor force participation rate to 62.5 percent.

Moderate increases in nonfarm payrolls will assure Fed policymakers that conditions in the labor market are consistent with mild expansion. The minor change in the unemployment rate leaves it in line with recent months and does not suggest a deterioration in conditions. Note that the rounding in the unemployment rate is just below the threshold that would have made it 4.3 percent and taken it back to the 4.3 percent seen in July.

Forecasters look for a 211,000 rise in nonfarm jobs, a bounceback from October's shocking 12,000 figure that reflected temporary layoffs due to strikes and hurricane effects. The question is whether part of the October weakness was genuine. If about 100,000 of expected job gains in November reflects recovery from October, it gives you the kind of underlying number that suggests enough room for the Fed to cut rates in December. The jobless rate is expected to tick up to 4.2 percent from 4.1 percent.

The most closely watched of all economic indicators, the employment situation is a set of monthly labor market indicators based on two separate reports: the establishment survey which tracks 650,000 worksites and offers the nonfarm payroll and average hourly earnings headlines and the household survey which interviews 60,000 households and generates the unemployment rate.

Nonfarm payrolls track the number of part-time and full-time employees in both business and government. Average hourly earnings track employee pay while the average workweek, also part of the establishment survey, tracks the number of hours worked. The report's private payroll measure excludes government workers.

The unemployment rate measures the number of unemployed as a percentage of the labor force. In order to be counted as unemployed, one must be actively looking for work. Other commonly known data from the household survey include the labor supply and discouraged workers.

If ever there was an economic report that can move the markets, this is it! The anticipation on Wall Street each month is palpable, the reactions can be dramatic, and the information for investors is invaluable. By digging just a little deeper than the headline unemployment rate, investors can take more strategic control of their portfolio and even take advantage of unique investment opportunities that often arise in the days surrounding this report.

The employment data give the most comprehensive report on how many people are looking for jobs, how many have them, what they're getting paid and how many hours they are working. These numbers are the best way to gauge the current state as well as the future direction of the economy. Nonfarm payrolls are categorized by sectors. This sector data can go a long way in helping investors determine in which economic sectors they intend to invest.

The employment statistics also provide insight on wage trends, and wage inflation is high on the list of opponents of easy monetary policy. Fed officials constantly monitor this data watching for even the smallest signs of potential inflationary pressures, even when economic conditions are soggy. If inflation is under control, it is easier for the Fed to maintain a more accommodative monetary policy. If inflation is a problem, the Fed is limited in providing economic stimulus.

By tracking the jobs data, investors can sense the degree of tightness in the job market. If wage inflation threatens, it's a good bet that interest rates will rise; bond and stock prices will fall. No doubt that the only investors in a good mood will be the ones who watched the employment report and adjusted their portfolios to anticipate these events. In contrast, when job growth is slow or negative, then interest rates are likely to decline - boosting up bond and stock prices in the process.


Importance
The employment situation is the primary monthly indicator of aggregate economic activity because it encompasses all major sectors of the economy. It is comprehensive and available early in the month. Many other economic indicators are dependent upon its information. It not only reveals information about the labor market, but about income and production as well. In short, it provides clues about other economic indicators reported for the month and plays a big role in influencing financial market psychology during the month. Additionally, the Fed has made 6.5 percent unemployment a threshold for considering changes in policy - both for quantitative easing and the fed funds rate. And the Fed has emphasized that it is overall labor market conditions that matter - not just a specific number.

Interpretation
The bond market will rally (fall) when the employment situation shows weakness (strength). The equity market often rallies with the bond market on weak data because low interest rates are good for stocks. But sometimes the two markets move in opposite directions. After all, a healthy labor market should be favorable for the stock market because it supports economic growth and corporate profits. At the same time, bond traders are more concerned about the potential for inflationary pressures.

The unemployment rate rises during cyclical downturns and falls during periods of rapid economic growth. A rising unemployment rate is associated with a weak or contracting economy and declining interest rates. Conversely, a decreasing unemployment rate is associated with an expanding economy and potentially rising interest rates. The fear is that wages will accelerate if the unemployment rate becomes too low and workers are hard to find.

Nonfarm payroll employment indicates the current level of economic activity. Increases in nonfarm payrolls translate into earnings that workers will spend on goods and services in the economy. The greater the increase in employment, the faster is the total economic growth. When the economy is in the mature phase of an expansion, rapid increases in employment cause fears of inflationary pressures if rapid demand for goods and services cannot be met by current production.

When the average workweek trends up, it supports production gains in the current period and portends additional employment increases. When the average workweek is in a declining mode, it probably is signaling a potential slowdown in employment growth-or even outright declines in employment in case of recession.

Gains in average hourly earnings represent wage pressures. It is worth noting that these figures aren't adjusted for overtime pay or shifts in the composition of the workforce, which affects wages on its own. Market participants believe that a rising trend in hourly earnings will lead to higher inflation. But if increased wages are matched by productivity gains, producers likely will not increase product prices with wages because their unit labor costs are stable.