The Zhitong Finance App learned that due to hurricanes and frequent strikes, recruitment activities in the US labor market basically stagnated for a month, making non-farm payrolls in October “distorted” to a certain extent. Therefore, the November non-farm payrolls report to be released on Friday evening Beijing time may more clearly depict the trend of the US labor market, and can be described as having a significant impact on whether US stocks can continue to rise to new highs and whether the Federal Reserve will choose to “suspend interest rate cuts” in December. Wall Street financial giant Goldman Sachs said that non-farm payrolls data has been of great significance to financial market pricing trends since this year, and the non-farm payrolls report to be released on Friday is definitely a major event affecting the direction of the market.

The US Bureau of Labor Statistics is about to release the November non-farm payrolls data. Economists expect the increase in non-farm payrolls to hover between 0.214 million and 0.22 million in November. This is a significant increase compared with an increase of only 0.012 million in October under the impact of the hurricane. More importantly, this will be the last time that the Federal Reserve will comprehensively review the US economic situation before its next monetary policy meeting from December 17 to 18. The non-farm payroll growth data for October was the worst non-farm payroll data since December 2020. According to the Goldman Sachs analysis team, as recent data suggests a soft landing in the US economy, unexpectedly strong non-farm data will provide an important basis for the Federal Reserve to choose to suspend interest rate cuts at the December meeting.

The core reason why this non-farm payrolls report is so important to global investors is that it is the Federal Reserve's last comprehensive assessment before the December monetary policy meeting. The market generally predicts that the Federal Reserve will once again choose to cut interest rates by 25 basis points, but this forecast may change significantly due to the performance of non-farm payrolls data. Since this year, the interest rate futures market's expectations of the Fed's interest rate cuts have often reversed 180 degrees after the release of non-agricultural data.

At a time when the inflation rate has declined markedly, there has been an occasional slight increase, and the slightly weak labor market is receiving increasing attention from financial markets, policy makers at the Federal Reserve are seeking to readjust monetary policy. Friday's non-farm payrolls report will undoubtedly provide the Federal Reserve with a clearer economic picture. It is essential for the Fed to choose to continue cutting interest rates or suspend interest rate cuts in December.

Kathy Jones, chief fixed income strategist at the Schwab Financial Research Center, said, “I expect this to be a pretty healthy number, as it should show a rebound from extremely weak data in October, when we experienced (hurricane) Milton and the Boeing strike, which led to a decline in jobs.”

The extent of fluctuations in non-farm payrolls data since this year can be called “wild.” In fact, many economists expect that the October figures may be boosted after the Bureau of Labor Statistics investigators re-examine the October non-farm payrolls data. In the post-COVID-19 period, the revision of non-farm payrolls reports is sometimes very drastic. However, with regard to market pricing and expectations of interest rate cuts from the Federal Reserve, this may make the impact of economic data on pricing and interest rate cut expectations more confusing, making subsequent trading operations more challenging for investors.

Bank of America's team of economists anticipates an increase of around 0.24 million jobs in November. They say this figure will reflect the full return of 0.1 million jobs, or more. Therefore, some economists say that in order to better understand potential trends, financial markets may pay more attention to the three-month moving average increase in the number of employed people.

In terms of the unemployment rate, economists predict that the median unemployment rate will remain unchanged at 4.1%, but some economists believe that this ratio may unexpectedly rise to 4.2%. The Bloomberg Economics team of economists wrote on Thursday: “As laid-off workers and new entrants to the labor market struggle to find work, the unemployment rate is likely to rise. We believe the real potential rate of monthly job creation is far below the rate needed to stabilize the unemployment rate.”

In terms of wage growth related to potential inflation, economists generally expect the average hourly wage to rise 0.3% month-on-month and 3.9% year-on-year, which means that both will be slightly lower than last month, which is good news for reducing inflation.

For the Federal Reserve, this data is important

“I expect the number of new jobs to exceed 0.2 million, and if we can achieve a real rebound, then the risk is likely to rise further.” Jones said. “But I'm also not sure how much information this jobs report can tell us because the effects of extreme weather have always been unstable. Does it really give us a clear view of the future, or is this just uncertain data that needs to be processed?”

In addition to the October non-farm payrolls report, the overall job market situation has shown a slowing trend since April. The average number of new jobs added each month is about 0.128 million, while the unemployment rate has risen to 4.1%. Federal Reserve policy makers want to lower the benchmark short-term borrowing rate to a more neutral level to balance inflation and employment, so they have cut interest rates twice in a row to “recalibrate monetary policy.” As overall inflation has cooled, the non-agricultural data can be described as the “most important economic data” in the world since this year.

Vincent Reinhart, an economist at the Federal Reserve Bank of New York and a former Federal Reserve official who worked at the Federal Reserve for 24 years, said, “This will definitely cause controversy in the market, because the hurricane and suspension of strikes will affect two months of data, that is, the month people don't work and the month after people return to work.”

“The Federal Reserve believes that the slowdown in non-farm payroll growth in 2024 is largely due to a trend — the trend is to create just over 0.1 million jobs per month, but this is not a cause for concern.” he added. “In fact, this is welcome because you know that this trend, which is neither strong nor weak, is sustainable and acceptable for the Federal Reserve's dual mission.”

Indeed, the latest signs suggest that the US job market is stabilizing. It is not as hot as during the period of high inflation, but it has not continued to deteriorate.

The number of first-time jobless claims has remained stable at around 0.22 million per week, although the number of renewed jobless claims shown in early November reached the highest level in about three years. Together, these figures show that companies are not making large-scale layoffs, but they are not re-hiring those who have lost their jobs.

The economic report released by the Federal Reserve on Wednesday, the “Beige Book” on the current situation, shows that recruitment activities are “relatively sluggish” because employee turnover is still low and few companies report an increase in the number of employees. According to the report, the number of layoffs is relatively “low,” yet employers are cautious about the speed of future recruitment and are more enthusiastic about entry-level employees and skilled jobs.

Ernst & Young senior economist Lydia Busur said, “Increased strike activity, hurricanes, and seasonal employment changes have greatly disrupted non-farm payroll data in recent months, making recruitment dynamics more difficult to interpret. After removing some recent fluctuations, the data is expected to show a healthy but slowing general trend in the labor market.”

For US stocks that have repeatedly reached new highs, this data may determine the trend in December

According to data already released by the US Bureau of Labor Statistics this week, the number of job vacancies increased in October, but the employment rate declined and the number of voluntary separations increased.

The Federal Reserve will have to weigh all of these factors, as well as concerns about rising inflation, when making the final interest rate decision and looking ahead to the future economy and interest rate path.

Reinhart said that if the labor market remains stable, then it should not put additional pressure on inflation. “So the strategy is to try to keep demand at trending levels, because if both growth and demand stay at trending levels, then you should maintain the current state of the labor market, which is roughly in this balance,” he added.

For US stocks that have repeatedly reached new highs since this year, this non-agricultural data is critical. It is related to whether there can be a “Santa” bullish market throughout December, and whether US stocks, which are at the highest level in history, can continue to advance in December. An analysis team from Goldman Sachs wrote in a report on Tuesday: “We think the US stock market needs a 'non-farm payment' between 0.15 million and -0.2 million. The market is ready for a sharp rebound in non-farm data from October's poor performance, and the adverse effects of the hurricane and strike gradually dissipate.”

“However, the stock market doesn't want to see more than 0.275 million new non-farm payrolls because the unexpected hot employment data will provide an important basis for Fed policymakers to suspend the interest rate cut process at the December meeting, and may prompt them to take a wait-and-see attitude towards 2025 as well. Therefore, we have temporarily returned to the 'non-farm payroll data must not be too good nor too weak' setting which is beneficial to the stock market.” Goldman Sachs's analysis team said. Goldman Sachs also stressed that the number of new non-farm payrolls should not be too weak. If it falls below the critical threshold of 0.1 million, it may cause the S&P 500 index to reverse due to rising expectations of the economic recession.