"We wanted to send a strong signal that we were going to support the labor market if it continued to weaken … The economy is strong, and it’s stronger than we thought it was going to be in September. The downside risks appear to be less in the labor market, growth is definitely stronger than we thought, and inflation is coming a little higher … So, the good news is that we can afford to be a little more cautious as we try to find neutral.” – Jay Powell
The December jobs report is the most important U.S. economic data point remaining this year and will determine if the Fed cuts by 25bps on Dec 18. The report is expected to show 220k jobs were added in November, up from the 12k reported in October, a number which however was distorted due to the impacts of Hurricanes and strikes at Boeing. These lost jobs in October will be re-added to the November report, and ING estimates this base figure to be a lowish 109k. As detailed below, analyst expectations range from 150-284k. The Unemployment Rate is expected to remain unchanged at 4.1%, and well beneath the September Fed median dot plot view of 4.4% (note, the unemployment rate was not distorted by weather or strikes, as it is part of the household survey), with forecasts ranging between 4.0-4.3%. Wages are expected to rise by 0.3%, cooling from the prior 0.4% pace while the Y/Y is expected to ease to 3.9% growth from 4.0%. However, the latest Fed minutes showed that some participants highlighted that wage increases were unlikely to be a source of inflationary pressure in the near future.
The jobs data will be used to help shape expectations for the December FOMC meeting, where the vast majority of analysts expect a 25bps rate cut, while money market pricing is assigning a 73% probability of such an outcome. The clearest signal we have had was from Fed Governor Waller, who said that he favors leaning towards a 25bps rate cut in December, although if the upcoming data between now and the meeting affects his forecasts for inflation, his assessment may change. Many others on the Fed have stressed they are keeping options open and will make decisions based on the totality of data. After the NFP report, next week sees the release of the CPI and PPI reports ahead of the December 18th FOMC.
