US Job Growth Stalls, Fueling Rate Cut Expectations Amid Rising Unemployment
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The US labor market is showing notable signs of weakness, with job creation slowing and unemployment rising, increasing pressure on the Federal Reserve to consider further interest rate cuts. Recent data indicates a growing risk of job losses, a concern amplified by the approaching midterm elections and the potential for increased political influence on the Fed’s monetary policy.
Economic Indicators Point to a Cooling Labor Market
US payrolls increased by 64,000 in November, exceeding the consensus estimate of 50,000, but October figures were revised down sharply to a loss of 105,000. The unemployment rate now stands at 4.6% – up from 4.4% in September and above the expected 4.5% – signaling a broader softening of the labor market. non-farm payroll growth has averaged a mere 22,000 over the past three months.
According to comments made last week,Federal Reserve Chair jerome Powell indicated the Fed believes payrolls are being overestimated by approximately 60,000 per month. This acknowledgment, one analyst noted, effectively confirms the economy is losing jobs and will likely bolster the case for dovish policymakers advocating for rate reductions.
Government Sector Losses Drive Downturn
the decline in October’s job figures was largely driven by a loss of 162,000 federal government positions, with a further 6,000 losses recorded in November. While the private sector continues to add jobs – 52,000 in October and 69,000 in November – growth is heavily concentrated in private education and healthcare services,which added 59,000 and 65,000 jobs respectively during those months.
Over the past three years, more than 90% of all US job creation has been confined to just three sectors: government, private education & healthcare, and leisure & hospitality.With the government sector now acting as a drag on overall employment, and other private sectors experiencing net job losses in five of the last seven months, the situation is becoming increasingly precarious.
Rising Unemployment and Wage Slowdown
the November unemployment rate increase to 4.6% stems from a separate household survey, which was not conducted in October due to the government shutdown. This survey revealed that nearly 230,000 more individuals classified themselves as unemployed since September, while the number identifying as employed rose by fewer than 100,000. Simultaneously, wage growth is decelerating, with average hourly earnings increasing by 3.5% year-on-year – the weakest pace in over four years.
The Federal Reserve’s Beige Book recently suggested that “employment declined slightly over the current period with around half of Districts noting weaker labour demand.” When factoring in the Fed’s estimate of a 60,000 monthly overestimation of payrolls, the three-month average of 22,000 for non-farm payrolls translates to an average of approximately -38,000. This figure is expected to intensify political pressure on the Fed to take action, particularly as the nation approaches an election year.
Fed Policy Outlook and Worker Sentiment
Chair Powell conceded that the jobs market has cooled, “maybe just a touch more gradually than we thought.” However, the unemployment rate is now higher than the Fed’s projections from just last week. With little indication of an imminent turnaround,analysts favor a 25 basis point rate cut in March,followed by another cut in June.
Worker pessimism regarding the job market outlook further supports the case for aggressive monetary policy action. “. If this relationship holds, the Fed may ultimately need to cut rates below 3%.
Consumer Resilience Amidst Economic Headwinds
October retail sales figures presented a mixed picture, with the headline number remaining flat – softer than market expectations. Weak auto sales, attributed to the end of electric vehicle incentives, contributed to the stagnation. Though, the control group, which excludes volatile components and provides a more accurate reflection of broader consumer spending trends, rose a robust 0.8% month-on-month. Despite the government shutdown impacting household incomes, this suggests the US consumer remains resilient even as the jobs market cools.
