Jobs ... Again

A month ago, the jobs report suggested a labor market that was finally improving. We learned that the economy had added 531,000 jobs in October -- that was more than 100,000 higher than the expectations. 

Tomorrow, we'll get the November numbers. Economists expect the gains to be roughly in line with October's, with a forecast rise of 535,000 in nonfarm payrolls.

Barron's Lisa Beilfuss notes that tomorrow's report takes on extra significance because of the Federal Reserve's coming change in monetary policy. In previewing the jobs report, Lisa writes tonight: 

Given Federal Reserve Chairman Jerome Powell’s recent pivot toward a more hawkish stance on inflation, the November jobs report is even more consequential than it otherwise would have been. Investors will learn Friday morning the degree to which the U.S. labor shortage persisted last month, with much of the outlook for economic and monetary policy hinging on whether millions of workers have started to return to the workforce. 

Lisa says that two figures may matter more than the headline payroll figure: the labor-force participation rate and average hour earnings. 

In October, the labor-force participation rate defied expectations for an increase and held at 61.6%. It hasn’t broken above 61.7% since the economy emerged from lockdowns, and the current level of participation is the lowest since the 1970s (except during the lockdowns of 2020). For months, economists have predicted a mass return to work as in-person school resumed and generous unemployment benefits expired. Is November the month when the workers finally returned in a meaningful way? 

Meanwhile, wages will be key as the Fed continues to weigh the impact of inflation on potential interest rate increases. Economists expect a month-over-month hourly wage gain of 0.4%, in line with last month's move, with the yearly gain coming in at 5%.

"While more pay for workers isn’t a bad thing," Lisa writes, "economists worry that fast wage increases signal a kind of wage-price spiral in which wages and consumer prices chase each other higher."