This Week’s Job Report Presents Mixed News For Investors

Key takeaways

• Thursday’s jobs report and unemployment report found that November’s numbers performed slightly better than expected
• Meanwhile, last week’s jobless claims rose roughly in line with estimates
• The numbers present mixed news for investors – while the jobs market appears resilient, that could spur more rate hikes in the future

All three major indexes closed up Thursday after the Department of Labor released its advanced jobs report for the first week of December. Investors are also building off last week’s jobs and unemployment report for November.

The tech-heavy Nasdaq Composite led the charge, adding 1.13%. The S&P 500 came in second, tacking on 0.75%, while the Dow trailed with 0.55% gained.

Until Thursday, the major indexes had started off the month mostly flat before sliding once more. Investor sentiment has remained heavy on expectations of more rate hikes in the future. Downbeat outlooks from several prominent companies – particularly in tech – have further weighed on asset values.

The late-week increases followed mixed news from the Labor Department.

Weekly jobless claims rose for the first week of December in a weak indication that interest rate hikes could soon slow. Meanwhile, last week’s data found that unemployment rolls hit a ten-month high in November.

However, last week’s jobs report found that U.S. employers hired a greater number of workers than expected in November. Wages also increased marginally in a small win for workers.

Dennis Dick, a market structure analyst at Triple D Trading, noted that market gains could indicate “a little window here for a relief rally” ahead of CPI data that will be released next week. “You’re just starting to see a few people coming in buying the dip,” he added.

Thursday’s jobs report

Thursday’s jobs report found that, for the week ending December 3, seasonally adjusted initial jobless claims hit 230,000. That’s an increase of 4,000 over the previous week’s initial claims. Initial claims represent the number of individuals who filed for unemployment for the first time after leaving a job.

The report also found that continuing benefits claims hit their highest level since February. As continuing claims represent those individuals who file multiple weeks in a row, this could signal that people are taking longer to find jobs.

Breaking down the numbers

Investors have taken Thursday’s small decline to mean that the tight labor market could be loosening at last. However, experts warn against getting too excited – yet.

The holiday season often presents volatile data as many companies slow or stop hiring during the winter months. At the same time, some of these same firms (see: Amazon
AMZN
) take on extra seasonal employees to complete short-term work.

However, 2022 isn’t a normal year, and in many cases, the hiring freezes have turned into widespread layoffs.

Take November’s “white-collar recession,” driven largely by overzealous juggernauts. Tech firms alone shed a combined 51,000 employees in November after months of over-hiring bloated their firms’ payroll.

Massive companies like Amazon and Meta shed over 10,000 employees each. Smaller firms like Twitter, Salesforce, Kraken and DoorDash all announced plans to shed at least 1,000 workers apiece. (Though in Twitter’s case, that’s admittedly a complex bag.)

It’s also important to consider the nuances that accompany 2022’s unusual market. While larger firms can’t shed excess spend fast enough, smaller firms continue to haggle for workers.

Nancy Vanden Houten, a lead U.S. economist at Oxford Economics, says that “There will likely be more layoffs among white-collar positions because of labor supply constraints…. [But] businesses are hoarding low-skilled workers because they have been difficult to find and retain.”

Still, some experts see a competitive market in the cards, at the least in the short-term.

Citigroup economist Isfar Munir believes that it’s “too early to interpret higher continuing claims as a signal of a loosening labor market.” He reasons that holiday seasons aren’t an “attractive” time for workers to begin new jobs, especially as “many firms temporarily close during the holiday period.”

November’s payroll and unemployment report

Investors have also drawn links between December’s jobs report and last week’s release of November’s payroll and unemployment data.

The Bureau of Labor Statistics reported that November saw nonfarm payrolls increase 263,000. That’s roughly in line with average growth of 282,000 over the past three months, and slightly less than October’s 284,000 jobs gained.

Leisure and hospitality led the gains, adding 88,000 positions in November. Healthcare saw 45,000 positions added, while government (mostly local positions) added 42,000. Personal, social assistance and construction all added between 20,000-24,000 jobs.

On the downside, retail established shed around 30,000 positions for the month. Transportation and warehousing lost about half as many, around 15,000.

Despite these gains, the number of unemployed persons remained virtually unchanged in November. Some six million people were left out of the workforce, with the unemployment rate holding steady at 3.7%. The number of long-term unemployed individuals (those jobless for at least 27 weeks) also held steady at 1.2 million persons.

The labor force participation rate also held steady near 62% for the month, and around 1.3% below pre-pandemic levels. Fed Chair Jerome Powell has often stressed the importance of returning to pre-pandemic labor force numbers, despite the Fed’s dedication to slowing the broader economy.

Meanwhile, average hourly earnings for all nonfarm workers increased by 18 cents, or 0.6%, in November. That brings 12-month wage increases to 5.1%, compared to the widely-expected 4.6%.

Breaking down the numbers

With November’s unemployment numbers holding steady, it appears the job market remains resilient against a backdrop of high inflation and increasing interest rates.

Labor demand largely continues to outpace supply, especially in blue-collar industries that have struggled to boost their ranks. As of October, there were about 1.7 open positions for every available worker.

Chief global strategist at Principal Asset Management Seema Shah notes that having 263,000 jobs added despite rapidly-rising interest rates is “no joke.” She added that the labor market is “hot, hot, hot, heaping pressure on the Fed to continue raising policy rates.”

Fed Chair Jerome Powell seems to agree. Earlier this week, he reported that job gains remain “far in excess of the pace needed to accommodate population growth over time.” He also noted that, while “strong wage growth is a good thing…it needs to be consistent with 2 percent inflation” to be sustainable.”

What do the jobs and unemployment report mean for you?

With jobs data sitting strong and unemployment remaining fairly resilient, it’s unlikely the Fed will cease interest rate hikes anytime soon.

So far, markets appear poised to receive another 0.5% rate hike when the Fed meets later this month. If CPI and jobs data don’t slow soon after, it’s possible several more could follow in the early months of 2023.

That said, it could take several months yet before we have evidence of how – and where – the central bank’s policies impact the economy. Randy Frederick, a managing director at Charles Schwab, said, “The economy’s big, and it takes a long time…for these things to filter through. The impact of these rate hikes hasn’t really been felt yet.”

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