US Payrolls PLUNGE in November! Is the Fed Ready to Cut Rates?

US private sector payrolls saw an unexpected decline in November, with companies shedding 32,000 jobs, according to data from ADP Research. This marks the steepest job loss since early 2023 and signals a potential weakening in the U.S. labor market, raising concerns ahead of the Federal Reserve's final policy meeting of the year.

The weak ADP report significantly missed economists' median forecast of a 10,000 job gain, further intensifying scrutiny on the state of employment. This development could influence the Federal Reserve's upcoming decision on interest rates, as policymakers try to balance employment trends with persistent inflation.

November Payrolls Disappoint

• Private sector employers cut 32,000 jobs in November.
• This figure is the largest monthly decrease since January 2023.
• Payrolls have now fallen four times in the last six months, indicating a shifting trend.
• The decline significantly missed the Bloomberg survey's median estimate of a 10,000 gain.

Small Businesses Struggle

• Companies with fewer than 50 employees were the hardest hit, shedding 120,000 jobs.
• This represents the largest one-month decline for small businesses since May 2020.
• Larger establishments with 50 or more employees, however, continued to add headcount.

Sectors Face Mixed Fortunes

• The decline in payrolls was broad-based, led by professional and business services.
• Other sectors experiencing job losses included information and manufacturing.
• Conversely, hiring increased in education and health services, showing sector-specific resilience.

Wage Growth Slows

• The ADP report also indicated a cooling trend in wage growth.
• Workers who changed jobs saw their pay increase by 6.3%, the lowest rate since February 2021.
• Employees who remained with their current employers experienced a 4.4% wage gain.

Federal Reserve Policy in Focus

• The weak labor data comes just before the Federal Reserve's crucial policy meeting next week.
• Policymakers have been divided on whether to cut interest rates for a third consecutive meeting, balancing labor market cooling with elevated inflation.
• Investors, however, widely anticipate the Fed will announce a reduction in borrowing costs.
• This ADP report is one of the few up-to-date labor indicators available to officials before their decision.

Market Reaction

• Following the release of the ADP report, S&P 500 futures largely held onto their gains.
• Treasury yields moved lower, reflecting a potential shift in market expectations towards easier monetary policy.

Delayed Official Data

• The official government November jobs report from the Bureau of Labor Statistics has been delayed.
• It was originally due December 5 but will now be released on December 16 due to the recent government shutdown halting data collection.
• This delay makes the ADP report more influential for immediate policy considerations.

Impact

• A weakening labor market, if sustained, could lead to reduced consumer spending, impacting corporate revenues.
• The data increases the likelihood of a Federal Reserve interest rate cut, which could boost market sentiment and lower borrowing costs for businesses and consumers.
• However, persistent inflation remains a concern, complicating the Fed's balancing act.
• Impact Rating: 8/10

Difficult Terms Explained

• Payrolls: The total number of employees on a company's payroll.
• ADP Research: A company that provides human resources management software and services, including data on employment trends in the U.S. private sector.
• Federal Reserve (Fed): The central banking system of the United States, responsible for monetary policy.
• Interest Rates: The cost of borrowing money, set by central banks to influence economic activity.
• Inflation: The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling.
• S&P 500 Futures: Contracts to buy or sell the S&P 500 index at a future date, used to speculate on market movements.
• Treasury Yields: The return an investor receives on U.S. government debt, influenced by interest rate expectations and economic outlook.
• Macroeconomic Environment: The overall state of the economy, including factors like inflation, unemployment, and growth.
• Beige Book: A report published by the Federal Reserve every eight weeks, summarizing current economic conditions across the twelve Federal Reserve Districts.