Danske Research Team
Danske Bank A/S
November to slightly exceed trend jobs growth
We expect the jobs report for November will show above trend progress in labour market. Employment growth has been lower than that indicated by other indicators such as PMI employment index in recent months. However, we expect a partial correction of that in November now that the effect of the hurricanes is diminishing. We expect employment growth of 195,000 in November. We expect the service sector to remain the main driver of job creation with 160,000 new jobs created in November. Although 195,000 new jobs per month would not have been considered strong last year, the labour market has tightened significantly since. Therefore, the current trend (approximately 160,000 m/m) is still strong enough to keep tightening the labour market. We expect unemployment to remain unchanged at 4.1%. Finally, we expect that average hourly earnings increased 0.2% m/m (2.6% y/y vs 2.4% y/y in October).
While most labour market indicators are strong, the slack indicators still suggest there is some slack left, as the numbers of marginally attached and part-time workers for economic reasons are still above pre-crisis levels and long-term unemployed is still elevated (see also the spider web chart on the next page). This suggests that the unemployment gap is not closed yet. One reason may be that people on the edge of the labour market do not have the necessary qualifications, as there are many positions which businesses are unable to fill.
Fed set to hike at December meeting
We expect the Fed to hike at its next FOMC meeting on 12-13 December. Even if we get a disappointing jobs report, this is not likely to change the Fed's intention to hike. Hence, the jobs report should not be a major market mover this time around. This has also been the norm during recent months where jobs reports have not had a significant effect on e.g. EUR/USD. This indicates that the market does not believe that a single number will change much in Fed policy decisions. See also our new publication,
Despite weak inflation and subdued wage growth, the Fed still thinks it is appropriate to hike rates, as Yellen still has a strong belief in the Phillips curve mechanism (tighter labour market will push up wage growth and hence inflation eventually). We expect no major changes in the interpretation of the labour market and its impact on Fed policy under Fed chair nominee Powell, as he has said that he thinks it is appropriate to continue the gradual hiking cycle. However, where uncertainties still remain is about how he will react in the case of an adverse shock to the economy.
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