Here’s what the market will be looking for in Friday’s key jobs report

At a time when the economy is supposed to be slowing, Friday’s jobs report is expected to show that employers actually picked up the hiring pace in November.

Not that there’s anything wrong with that. A growing economy is a good thing, and nothing underpins that better than a solid labor market. Economists surveyed by Dow Jones expect the Labor Department to report that nonfarm payrolls expanded by 190,000 last month, up from the 150,000 in October.

But investors and policymakers have been expecting things to slow down enough to at least allow the Federal Reserve to call an end to this cycle of interest rate hikes as inflation ebbs and the supply-demand mismatch in employment evens out.

A hot jobs report could undermine that confidence, and put a damper on what has been a buoyant mood on Wall Street.

“There’s some risk to the upside because of the returning auto workers who were on strike,” said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research. “So it looks like a steady but slowing jobs market.”

Payroll growth has averaged 204,000 over the past three months, a solid gain though well below the 342,000 level for the same period in 2022. The unemployment rate over the past 12 months, however, has risen just 0.2 percentage point to 3.9%, elevated from where it was earlier in the year but still characteristic of a robust economy.

However, there are a number of dynamics at play in the current picture that make this week’s report, which is scheduled to be released at 8:30 a.m. ET, potentially critical.

Wage growth and inflation

Probably the most important data point outside the headline numbers will be wages.

Average hourly earnings are expected to show acceleration of 0.3% from October and 4% over the 12-month period, according to Dow Jones.

The yearly average hourly earnings level is not consistent with the Fed’s 2% inflation goal, but it is off its March 2022 peak of 5.9%. Getting wage growth to a sustainable level is vital to bringing inflation down, so anything more pronounced could generate a market reaction.

“When you come down to trying to measure supply and demand, price is probably the most accurate way to look at it, and you know that wage growth has slowed considerably,” Jones said. “So it tells you supply and demand are coming back on track.”

Jobless rate as a recession indicator

Outside of wages, the headline unemployment rate could get some extra scrutiny.

Though the jobless figure has risen just incrementally from a year ago, it’s up half a percentage point from its recent low of 3.4% in April.

The difference is significant in that a time-tested indicator known as the Sahm Rule shows that when the unemployment rate rises half a point from its most recent low on a three-month average, the economy is in recession.

‘Excess profits’ at big energy and consumer companies pushed up inflation, report claims

Cooling inflation will be a 'double-edged sword' for companies, says Wolfe Research's Chris Senyek

LONDON — Major companies in the energy and food sectors amplified inflation in 2022 by passing on greater cost increases than needed to protect margins, according to a new report.

British think tanks the Institute For Public Policy Research and Common Wealth said in a report Thursday that big firms made inflation “peak higher and remain more persistent,” particularly within the oil and gas, food production and commodities sectors.

“We argue that market power by some corporations and in some sectors – including temporary market power emerging in the aftermath of the pandemic – amplified inflation,” the report said.

The author’s analysis of financial reports from 1,350 companies listed in the U.K., U.S., Germany, Brazil and South Africa found nominal profits were on average 30% higher at the end of 2022 than at the end of 2019.

This does not necessarily mean that overall profit margins have risen, but it does mean that higher prices have been shouldered by consumers, the authors said.

Companies with (temporary) market power seemed to be able to protect their margins or even reap ‘excess profits’, setting prices higher than would be socially and economically beneficial,” they wrote.

The report stresses that corporate profits were not the sole driver of inflation and did not cause the energy market shock following Russia’s invasion of Ukraine in February 2022. But the report authors argue that so-called “market power” has not been sufficiently captured in the current debate around the causes of inflation, particularly when compared with the impact from the labor market and rising wages.

“In an energy shock scenario, if costs were equally shared between wage earners and company owners, one would expect the rate of return to fall as firms do not increase prices fully to make up for higher costs, and wage earners do not fully keep up with inflation. But this is not what happened. A stable rate of return – for example, as seen in the UK – suggests pricing power by firms, which allowed them to increase prices to protect their margins,” it said.

It identified Shell, Exxon Mobil, Glencore and Kraft Heinz as among the firms that saw profits “far outpace” inflation.

Glencore declined to comment when contacted by CNBC. The other companies did not respond.

Inflation began a steady march higher in mid-2020 amid a host of factors including global supply chain constraints, volatile food production conditions, tight labor markets, pandemic stimulus measures and the Russia-Ukraine war.

The impact of so-called “greedflation,” or companies raising prices more than needed to protect margins from higher input costs and market movements, has been contested.

Several analysts, along with policymakers including European Central Bank President Christine Lagarde, have cited the issue as a potential contributing factor to inflation.

But what constitutes “greedflation” is not an exact science. This year, the boss of U.K. supermarket giant Tesco suggested that some food producers may be raising prices more than necessary and fueling inflation, a claim that was strongly denied by the industry.

blog posted by economists at the Bank of England in November found “no evidence” of a rise in overall profits among companies in the U.K., where they say prices have risen alongside wages, salaries and other input costs, with a similar picture in the euro zone.

“However, companies in the oil, gas and mining sectors have bucked the trend, and there is lots of variation within sectors too – some companies have been much more profitable than others,” they wrote.

China vows to ‘moderately’ strengthen fiscal policy to bolster economic recovery

China’s top decision-making body of the ruling Communist Party on Friday said the country’s fiscal policy “must be moderately strengthened” to stimulate economic recovery, according to state-run news outlet Xinhua.

China’s Politburo said it would continue to implement “proactive” fiscal policies and “prudent” monetary policies next year, in a bid to bolster domestic demand.

Chaired by Chinese President Xi Jinping, the Politburo’s Friday meeting analyzed the economic work to be undertaken in 2024. It pledged to effectively enhance “economic vitality,” to prevent and defuse risks and to consolidate and enhance the upward trend of an ailing recovery in the world’s second-largest economy.

China’s Politburo said that “proactive fiscal policy must be moderately strengthened, improve quality and efficiency, and the prudent monetary policy must be flexible, appropriate, precise and effective.”

Lost momentum

Demand for Chinese goods has fallen this year as global growth slows, stoking concerns about Beijing’s ability to mount a robust post-pandemic recovery. Momentum has taken a hit from a slew of factors, including the country’s beleaguered property market, sluggish global growth and geopolitical tensions.

HSBC’s chief Asia economist, Frederic Neumann, told CNBC on Thursday that the Chinese economy is unlikely to be bolstered by further fiscal stimulus and still has a “steep hill to climb,” even after a surprise pickup in exports.

Exports in U.S. dollar terms rose by 0.5% year on year in November, defying expectations for a 1.1% decline among analysts polled by Reuters. Imports in U.S. dollar terms fell by 0.6% over the 12 months, well below a consensus forecast of a 3.3% increase.

Economists have noted external demand in China is still relatively weak and warned that policy support that focuses purely on the supply side will likely not be enough to achieve lasting results.

U.S. payrolls rose 199,000 in November, unemployment rate falls to 3.7%

  •  and hospitality (40,000).
U.S. payrolls rose 199,000 in November, unemployment rate falls to 3.7%

Job creation showed little signs of a letup in November, as payrolls grew even faster than expected and the unemployment rate fell despite signs of a weakening economy.

Nonfarm payrolls rose by a seasonally adjusted 199,000 for the month, slightly better than the 190,000 Dow Jones estimate and ahead of the unrevised October gain of 150,000, the Labor Department reported Friday. The numbers were boosted by sizeable gains in government hiring as well as workers returning from strikes in the auto and entertainment industries.

The unemployment rate declined to 3.7%, compared with the forecast for 3.9%, as the labor force participation rate edged higher to 62.8%. A more encompassing unemployment rate that includes discouraged workers and those holding part-time positions for economic reasons fell to 7%, a decline of 0.2 percentage point.

“The job market continues to be resilient after a year of dodging recession fears,” said Daniel Zhao, lead economist at job ratings site Glassdoor. “Really the one concern that we had coming in today’s report was the recent rise in the unemployment rate. So the improvement in unemployment was a welcome relief.”

The department’s survey of households, used to calculate the unemployment rate, showed much more robust job growth of 747,000 and an addition of 532,000 workers to the labor force.

Average hourly earnings, a key inflation indicator, increased by 0.4% for the month and 4% from a year ago. The monthly increase was slightly ahead of the 0.3% estimate, but the yearly rate was in line.

Markets showed mixed reaction to the report, with stock market futures modestly negative while Treasury yields surged.

“What we wanted was a strong but moderating labor market, and that’s what we saw in the November report,” said Robert Frick, corporate economist with Navy Federal Credit Union, noting “healthy job growth, lower unemployment, and decent wage increases. All this points to the labor market reaching a natural equilibrium around 150,000 jobs [per month] next year, which is plenty to continue the expansion, and not enough to trigger a Fed rate hike.”

Health care was the biggest growth industry, adding 77,000 jobs. Other big gainers included government (49,000), manufacturing (28,000), and leisure and hospitality (40,000).

Heading into the holiday season, retail lost 38,000 jobs, half of which came from department stores. Transportation and warehousing also showed a decline of 5,000.

Duration of unemployment fell sharply, dropping to an average 19.4 weeks, the lowest level since February.

The report comes at a critical time for the U.S. economy.

Though growth defied widespread expectations for a recession this year, most economists expect a sharp slowdown in the fourth quarter and tepid gains in 2024. Gross domestic product is on pace to rise at just a 1.2% annualized pace in the fourth quarter, according to an Atlanta Fed data gauge, and most economists expect growth of around 1% in 2024.

Here’s where the jobs are for November 2023 — in one chart

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U.S. payrolls rose 199,000 in November, unemployment rate falls to 3.7%

The U.S. job market once again surprised to the upside in November, as strong growth in health care and a few other sectors helped the economy add nearly 200,000 jobs and push the unemployment rate down.

Health care and social assistance added more than 93,000 jobs for the month, making it the top category for job growth, according to the U.S. Bureau of Labor Statistics. Government jobs grew by 49,000, while leisure and hospitality added 40,000 jobs.

The job gains for health care and social assistance rise to 99,000 when including private education, as some economists do.

Much of the labor market story over the past two years has been tied to the economic rebound from the Covid-19 pandemic, but the health-care growth appears to be part of a longer-term trend.

“We’re back to 2019 in some ways. If prior to the pandemic, you would have said, ‘Hey, health care’s going to be one of the largest sources of hiring in late 2023,’ no one would have been surprised by that, I think. There are very long-term structural tailwinds here,” Nick Bunker, director of economic research at Indeed Hiring Lab, told CNBC.

Bunker also pointed out that health care is less sensitive to higher interest rates or other cyclical factors that affect the U.S. labor market.

Another key part of the jobs growth story in November was returning strike workers.

Manufacturing employment rose by 28,000, helped by the 30,000 jobs gained in motor vehicles and parts as the United Auto Workers strike ended. The information sector was also bolstered by the addition of 17,000 jobs from the motion picture and sound recording industries, as Hollywood production restarts after the actors’ strike was resolved.

Retail trade was an outlier area to the downside, losing more than 38,000 jobs. The sector is roughly flat year over year in terms of total jobs, according to the Labor Department.

“I’m not spooked by it right now. … If you look at the nonseasonally adjusted gains for that sector, it’s roughly in line with what we saw last year. So maybe the seasonal adjustments need to catch up or change. I think we’ve seen this with a variety of data,” Bunker said.

Unemployment among Asian workers and Black men rises in November while the overall rate declines

The labor market deteriorated for both Asian and Black workers in November, according to data released Friday by the U.S. Department of Labor.

The overall unemployment rate declined 0.2% to 3.7% last month, against a forecast that it would hold steady at 3.9%. Overall, the labor force participation rate ticked up to 62.8% alongside a surge of 532,000 workers into the labor force.

For white Americans, the jobless rate fell 0.2 percentage points to 3.3%. Hispanic Americans also saw their unemployment rate slip 0.2 percentage points to 4.6%.

On the other hand, Asian Americans saw a 0.4 percentage-point jump in the unemployment rate to 3.5%. This was accompanied by a decline in the participation rate for Asian workers to 65% from 65.3% in October.

“That uptick in unemployment is not because more Asian workers are flooding into the labor market, feeling optimistic about getting jobs. It’s actually accompanied by a fall in participation as well as a fall in employment,” Elise Gould, senior economist at the Economic Policy Institute, told CNBC.

The unemployment rate for Black Americans — the demographic with the highest jobless percentage in the U.S. — held steady last month at 5.8%. The jobless rate for Black men age 20 or older spiked more than 1 percentage point to 6.4% from October’s 5.3%. That said, those gains came as the participation rate for this cohort increased to 69.2% from 67.5%.

“The rise in unemployment is because more workers are optimistic, coming back in or entering the labor market for the first time, and many of them are finding jobs. And many of them are not, which is why the unemployment rate went up,” Gould added.

Black Americans were hit harder by business shutdowns during the Covid-19 pandemic. The unemployment rate for Black workers peaked at 16.8% in 2020, versus the overall unemployment rate’s April 2020 high of 14.7%.

Gould added the caveat that the Asian workers in the survey made up a relatively smaller demographic group, and that both of these series are incredibly volatile from month to month.

All about consumers and inflation

Key to whether the so-called landing is soft or hard will be the consumer, who collectively accounts for nearly 70% of all U.S. economic activity.

On that front, there was another round of good news Friday: The University of Michigan’s closely watched consumer sentiment survey showed that inflation expectations, a key economic variable for prices, plummeted in December. Respondents put one-year inflation expectations at 3.1%, a stunning 1.4 percentage point drop.

However, such gauges can be “fluky” and are not in line with some other signals coming from consumers, said Liz Ann Sonders, chief investment strategist at Charles Schwab. Debates over soft landings and inflation expectations and interest rate outlooks tend to miss bigger points, Sonders added.

The risk of recession is quite low, says Goldman Sachs' Jan Hatzius

Prior to 2023, Sanders and Schwab had been stressing the notion of “rolling recessions,” meaning that contractions could hit certain sectors individually while not dragging down the economy as a whole. The distinction may still apply heading into 2024.

The recession versus soft landing debate sort of misses the necessary nuances of this unique cycle,” Sonders said. “A best-case scenario is not so much a soft landing, because that ship has already sailed for [some] segments. It’s that we continue to roll through such that if and when services gets hit more than the brief ding so far and it takes the labor market with it, you’re already in stabilization or recovery mode in areas that already took their big hits.”

Getting to the soft landing, then, likely will require navigating some of those peaks and valleys, none more so than establishing confidence that inflation really has been vanquished and the Fed can take its foot off the brake. Inflation, according to the Fed’s preferred gauge, is running at 3.5% annually, well above the central bank’s 2% goal, though is consistently falling.

The runway is getting clearer, but the U.S. economy still isn’t assured of a soft landing

November’s solid jobs report did not assure that the economy will come in for a soft landing, but it did help to clear the runway a little more.

After all, there’s nothing about a 3.7% unemployment rate and another 199,000 jobs that even whispers “recession,” let alone screams it.

At least for now, then, the U.S. economy can take another win with a small “W” as it looks to navigate through what had been the highest inflation level in more than 40 years — and a still-uncertain path ahead.

“Overall, the jobs market is doing its part to get us to a soft landing,” said Daniel Zhao, lead economist at jobs rating site Glassdoor. “It’s boring in all the right ways. That’s a welcome change after a few years of less-boring reports.”

Indeed, despite a high level of anxiety heading into the Labor Department’s nonfarm payrolls report, the details were fairly benign.

The level of job creation was just above the Wall Street estimate of 190,000. Average hourly earnings rose 4% from a year ago, exactly in line with expectations. The unemployment rate unexpectedly declined to 3.7%, easing worries that it could trigger a historically dead-on signal known as the Sahm Rule, which coordinates increases of the unemployment rate by half a percentage point to recessions.

Still, the solid report couldn’t dispense the lingering feeling that the economy isn’t out of the woods yet. The fear primarily comes from worries that the Federal Reserve’s aggressive interest rate increases haven’t exacted their full toll and still could trigger a painful downturn.

“The key uncertainty for the labor market in 2024 is whether job growth slows to a more sustainable pace, or whether the economy moves from monthly job gains to monthly job losses. The former would be consistent with the Fed’s soft-landing scenario, while the latter would mean recession,” said Gus Faucher, chief economist at PNC Financial Services. “PNC still thinks recession is the more likely outcome in 2024, but it is a close call.

‘Somebody has it wrong’ on U.S. recession risks as oil, gold and Treasurys diverge, fund manager says

'Somebody has it wrong' on the risk of a U.S. recession, hedge fund manager says

Markets are confused over the odds of a U.S. recession, and “somebody has got it wrong,” according to hedge fund manager David Neuhauser.

The CIO of Livermore Partners told CNBC on Monday that many investors are hoping for a “Goldilocks” scenario, in which the economy doesn’t grow too quickly, or shrink too much.

“The outlook was, of course, that the Fed’s going to look to be cutting rates because they see a soft landing approaching. And it looks like, on the surface, it is,” he told “Squawk Box Europe.”

Recent jobs data and inflation figures have boosted hopes that a recession can be avoided in the U.S. Nonfarm payrolls outpaced expectations in November, and inflation figures for October also beat estimates, with consumer prices coming in flat on the previous month and up 3.2% from a year prior.

“But at the same time, underneath the surface, you’re seeing a lot of cracks,” Neuhauser added.

He identified weakness in the U.S. consumer and the global economy — China in particular — and in the fact that inflation numbers remain stubbornly high in a number of countries.

“It looks like the U.S. is the best spot to be in, and I think that today that’s true. Except I think that [the] forward path — are we going to see things start to fall off a cliff? Or are we going to, sort of, glide path down and corporate earnings are going to be sheltered from the storm?” he said.

“That’s the thing, I think, people don’t have a really good understanding of today, but they’re believing that that’s going to happen — that’s the narrative.”

Oil and gas markets, which Livermore Partners is invested in, are “telling a whole different story” when it comes to the economic outlook, according to Neuhauser.

“When you look at the oil … and you look at the gold market, that’s telling you recession is in the front,” he said. “But when you read the tea leaves in terms of what analysts are saying, economists are saying as far as the U.S. economy — that the soft landing is approaching. That’s what, actually, the 10-year [Treasury yield] is telling you.”

Brent crude futures with February expiry were trading around $75.67 per barrel early Monday, down over 20% from their peak of around $97 per barrel in September.

Spot gold prices have soared from their early October lows of around $1,810 per ounce. The commodity was trading around $1,991 an ounce Monday, off a record high above $2,100 per ounce seen last week.

Both falling oil prices and rising gold prices indicate growing recessionary fears. At the same time, heightened expectations of a soft landing (following the strong jobs data) saw 10-year Treasury yields jump Friday. The 10-year yield was hovering around 4.254% early Monday.

“Somebody has it wrong here, is what I’m trying to tell you,” Neuhauser added. “It’s hard to describe who has it [wrong] yet. So I’m just really waiting and seeing to decipher what’s the right path to take.”

Spanish economist picked to lead the EU’s massive lending unit lays out her priorities

  • allenges.
New EIB chief Nadia Calviño says a priority is 'to speed up procedures'

The incoming head of one of the world’s largest development banks says it must become faster and more efficient in order to finance priorities such as the climate transition and Ukraine rebuild.

Nadia Calviño, Spain’s finance minister and deputy prime minister, was appointed head of the European Investment Bank Friday — in what has been touted as a boost for Spanish influence within the European Union. Known as the EU’s lending arm it approved some 75.86 billion euros ($81.6 billion) in new projects in 2022.

One of my priorities when I get to the European Investment Bank will be to see how to speed up procedures, how to make the institution, not leaner, but more efficient in funding, public and private investment,” Calviño told CNBC’s “Squawk Box Europe” on Monday.

“We also have a European Union with 27 member states, and it is a complex construction. But still, it leads the green transition in the world, it has a leading role in many of today’s debates, and I think this leading role should be preserved going forward.”

The organization “has the capability, the ability, to mobilize large amounts of investment, public and private investment, in the areas of the green transition, the rebuilding of Ukraine, and all other European priorities. So indeed, I do think that we need an EIB which is fit for purpose to support European policies going forward,” she said. She said she will also look to increase co-operation and discussion between global multilateral development banks to create a “global safety net” fit to meet new challenges.

Calviño said that Spain had launched a “massive” investment program using funds from the NextGenerationEU pandemic recovery instrument.

“What we see is that we launched strategic projects in the area of electric vehicles, or precision health, or agri-tech … or chips. And this is actually attracting large private investments that see Spain as a great opportunity for them to set their bases and invest in R&D [research and development] and the development of new technologies. So I do think there is a chance for us to crowd in private investment if we do things right,” she said.

‘Global standard’ on AI

Asked about the negative reaction by some tech leaders to landmark new EU regulation around artificial intelligence, Calviño was firm that the bloc had reached the “right balance.”

The rules, agreed in an initial form by lawmakers Friday, divides AI into categories including “unacceptable” uses that must be banned, along with high, medium and low-risk. High-risk technologies will be required to comply with various requirements, including an impact assessment, in order to access the EU market.

Some parts of the industry may not want to have any regulation whatsoever. But, you know, citizens are also expecting the public sector to ensure that the development and the innovation in this area is going to preserve human rights, our values and actually go in the direction of improving humankind’s living conditions … from this point of view, I think that we’ve struck the right balance.”

“There is proportionality in the rules for smaller players and for large platforms. We’re going step by step, starting with artificial intelligence having to show that something, a picture, a video, has been created through artificial intelligence, to start with … It is a very important step forward so that Europe is also leading standard-setting at the global level.”

On whether the rules risked hampering the ability of Europe’s technology firms to grow and compete on the global stage, Calviño said: “This debate took place when we adopted the general data protection regulation. And many people said, well, companies are going to abandon Europe.”

“Actually, that has become the global standard. And I think it’s going to be something similar in artificial intelligence. But I agree, we need a global standard. And that’s why it’s important that the United Nations is also looking into these issues.”