Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
US employers added 199,000 jobs in November, a jump from October and another sign of labour market strength that will bolster Federal Reserve officials’ view that the economy can withstand high interest rates.
The non-farm payrolls figure was stronger than expected and marks an boost from 150,000 the previous month. The US unemployment rate fell to 3.7 per cent from 3.9 per cent, the Bureau of Labor Statistics said on Friday.
The data knocked investors’ hopes that the Federal Reserve will begin cutting rates as soon as the spring. Earlier this week, the price of gold hit an all-time high as traders ratcheted up bets of rate cuts next year.
On Friday traders in futures markets scaled back the odds of a quarter-point rate cut in March from officials’ current target range of 5.25 per cent to 5.5 per cent.
Lower interest rates are still fully priced in for May, despite economists’ expectations that borrowing costs are likely to remain on hold until the second half of next year.
The robust hiring data will bolster hopes that the Fed can achieve a so-called soft landing, in which it tames inflation without triggering a recession.
Policymakers on the Federal Open Market Committee are due to convene in Washington next week, with an announcement expected on Wednesday afternoon. Rates are forecast to stay on hold.
Central bank officials insist cuts remain off the agenda for the time being, despite sharp falls in inflation, due to the labour market’s resilience in the face of their lengthy campaign of rate rises.
“The Fed needs to see disinflation and weakness in the economic data, particularly in the labour market, to advance,” said Eric Winograd, economist at AllianceBernstein. “Right now, we don’t have that.”
Rate-setters want to see more signs that their restrictive monetary policies are finally beginning to dent wage growth to levels consistent with their goal of keeping inflation steady at 2 per cent.
The November labour market figures showed average hourly earnings rose 0.4 per cent month on month, and at an annual rate of 4 per cent — levels seen as far above rate-setters’ comfort zone.
“The month-on-month figure is not what the Fed wants to see. If you annualise that out, you’re at levels close to 5 per cent,” said Andrew Patterson, senior international economist at Vanguard, an investment manager.
However, the jobs numbers were boosted by a deal struck between big US car manufacturers and the United Auto Workers union following a six-week strike, which almost entirely offset the 32,000-strong fall in jobs in the automotive sector in October.
“Were it not for the strike impact, payrolls would have been closer to 170k, but you’d also have to boost last month’s 150k up to around 180k as well,” said Thomas Simons, US economist at Jefferies.
He added that the return of well-paid autoworkers to production lines was also likely to have boosted pay.
Treasury bond yields rose following the jobs figures.
The two-year Treasury yield, which moves with interest rate expectations, rose to 4.74 per cent, its highest level in December, while the 10-year Treasury yield was up 0.1 percentage points to 4.23 per cent in late afternoon trading.
US stocks opened lower on Friday, but flipped into positive territory following strong consumer sentiment data during the morning session. The S&P 500 and the Nasdaq Composite each gained 0.4 per cent to close at their highest levels in about 20 months.
