Mounting Evidence of a Weaker Job Market

More labor sector data is pointing to growing softness in the job market, while the latest inflation figures came in largely as expected. Here’s a look at the key highlights.

·      Small Businesses Drive a Sharp Drop in Private Payrolls

·      Additional Indicators Signal a Softer Job Market

·      PCE Inflation Data Points to Possible Rate Cut

Small Businesses Drive a Sharp Drop in Private Payrolls

The private sector shed 32,000 jobs in November, according to ADP – well below expectations. Small businesses cut 120,000 jobs, while medium-sized firms added 51,000 and large employers added 39,000.

Six of ten industries lost jobs. Education and health services led gains with 33,000, and leisure and hospitality added 13,000, likely reflecting seasonal trends.

Wage growth still favors job switchers, up 6.3% year over year versus 4.4% for job stayers. The gap has narrowed to 1.9%, the smallest in five years, signaling less competitive hiring.

What’s the bottom line? The private sector has lost 17,000 jobs over the past four months. ADP Chief Economist Dr. Nela Richardson described hiring as “choppy,” citing cautious consumers, an uncertain economy, and broad slowing led by small businesses.

This report carries added weight because official government employment data for October and November has been delayed by the federal shutdown and won’t arrive until after the Fed’s December 10 meeting.

The Fed is balancing above-target inflation against slowing momentum. Weak labor data increases the odds of a rate cut, but officials remain split, and Chair Jerome Powell has cautioned there’s “no risk-free path.”

Quick refresher: When the Fed adjusts interest rates, it changes the Federal Funds Rate – the short-term rate banks charge each other. This doesn’t directly set mortgage rates, but it strongly influences them along with broader economic conditions.

Additional Indicators Signal a Softer Job Market

Initial jobless claims fell by 27,000 to 191,000, though the decline was likely influenced by Thanksgiving, since many people delay filing due to travel or holiday plans. Continuing claims also dipped slightly to 1.939 million, but they have stayed above 1.9 million since mid-May, signaling ongoing strain for those already unemployed.

Challenger, Gray & Christmas reported 71,000 job cut announcements in November, a 24% increase from a year ago. Restructuring was the primary driver last month, while DOGE impacts remain the leading cause of job cuts for the year. Employers have announced 1.17 million cuts year-to-date – only the sixth time since 1993 that totals through November have exceeded 1.1 million.

Hiring plans are also weakening. Year-to-date hiring announcements are at their lowest level since 2010, and seasonal hiring plans are the weakest since 2012.

What’s the bottom line? Persistently elevated claims, rising job cuts, and weak hiring plans point to a labor market that continues to lose momentum.

PCE Inflation Data Points to Possible Rate Cut

The government released the delayed Personal Consumption Expenditures (PCE) report for September, coming mostly in line with expectations. Overall inflation rose 0.3% for the month, nudging the annual rate from 2.7% to 2.8%.

Core PCE – the Fed’s preferred measure, which excludes food and energy – rose 0.2% in September and edged down slightly year-over-year from 2.9% to 2.8%, just a touch better than expected.

What’s the bottom line? Inflation in line with forecasts bolsters the case for a Fed rate cut amid slowing job growth.

‍