Jobs report: door now open to further rate cuts?

The unemployment rate continues to climb. At 4.6%, it is already higher than what the Fed projects for the end of the year.

The BLS has finally published mixed employment figures. In October, 105,000 jobs were lost, versus only 25,000 expected. In November, by contrast, 64,000 jobs were created, versus 50,000 expected.

October's figures are explained mainly by cuts at Elon Musk's DOGE, which eliminated numerous civil service jobs early in the year, recorded in October.

The private sector continues to create jobs: +52,000 in October and +69,000 in November. The six-month average is nevertheless at its lowest since the end of the pandemic, at 44,000.

Unemployment, however, continues to rise - to 4.6%, versus 4.5% expected, and 4.4% in September. All this data points to a labor market that is continuing to slow, albeit without truly going off the rails.

Caution about the data

An interesting point highlighted by the Wall Street Journal is that the Fed's latest projections foresaw little further deterioration in the labor market. Taking the median of FOMC members, the unemployment rate is expected at 4.5% at end-2025, and 4.4% at end-2026. Rather dovish projections, since any further increase in the unemployment rate would be a good reason to cut rates more.

Looking at the data to three decimal places, the unemployment rate went from 4.44% in September to 4.564% in November. Jerome Powell said at a press conference last week that monetary policy was well positioned and that the jobless rate should stabilize or "only rise by one or two tenths." We are almost there already.

The market's initial reaction seemed to go in that direction: bad news is good news. The worse-than-expected numbers mean there will be more rate cuts. Futures turned green, although opened in the red, while indexes have since then been pretty flat.

Overall, moves remain very limited. Investors may have more in mind than another comment from Jerome Powell a week ago. The Fed chair said that delayed data would not necessarily help the Fed see more clearly. Indeed, the shutdown disrupted data collection but also the US economy itself, with most civil servants unemployed, spending necessarily postponed...

The BLS also said that the response rate to the household survey - used to calculate the unemployment rate - was lower than usual, at 64%.