On November 29, 2021, during the Cyber Monday operations of Amazon’s operations center in Robbinsville, New Jersey, a worker transported the scanned cargo box to the delivery truck.
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With employment growth expected to be strong in November, employers may continue to raise wages to attract and retain workers in the extremely tight labor market.
According to Dow Jones data, economists expect 573,000 jobs were created last month, up from 531,000 in October. The unemployment rate is expected to fall from 4.6% to 4.5%, and the average hourly wage is expected to increase by 0.4% per month, or 5% year-on-year.
Diane Swonk, chief economist at Grant Thornton, said: “It looks like this is a very good month. We will see if we can maintain it and make some corrections. This is natural in the concerns about omicron.” But for now, we are still spending an incredible month, especially in the travel and tourism industry.”
It is expected that the employment data released at 8:30 am Eastern Time on Friday will become important information for the Fed’s December 14th and 15th meeting. Earlier this week, Fed Chairman Jerome Powell stated that the Fed may accelerate the reduction of its $120 billion monthly bond purchase program, which is designed to support the economy during the pandemic. He said that the Fed will discuss acceleration at its December meeting.
The dual mission of the Federal Reserve
Full employment is one of the Fed’s dual tasks, so economists will pay close attention to the participation rate in the November report to see if it will rise. This indicator is the percentage of qualified labor who are employed or actively looking for work, which was 61.6% in October.
Swank expects 750,000 new jobs in November, higher than expected, and she expects the unemployment rate to drop to 4.4%. Swank said that wage growth should be steady because employers are trying to attract workers in the face of demand from Amazon and other employers that raise wages.
“This is a hot job market with a surge in demand, which we have never seen before,” she said. She pointed out that according to data from the online employment site Indeed, job vacancies have increased by 55% from the level in February 2020.
“There is no immigration. It fell off the cliff. The pandemic has accelerated retirement and compromised the participation of some of the groups that usually need it most,” she said. “This is far from perfect. This is a job market where surges in demand conflict with supply constraints.”
Wages may rise across the board in November. “We will see low-end gains, but high-end professional services are really hot,” Swank said.
Luke Tilley, chief economist at Wilmington Trust, predicts that 300,000 jobs will be created in November based on data from the private sector and weekly unemployment claims.
He expects hiring trends to be strong and will continue to be so.
“Our expectation is that there will be an average of 500,000 jobs per month in the next 12 months, but with the ups and downs of the virus and different industries, there will be fluctuations,” Tilly said.
The larger context behind the employment report
Tilly said the Fed will look for the reasons behind the weak or strong employment report as it tries to assess the normal conditions of the labor market after the pandemic. “If it is weak because there is still no labor supply, it is very different to them from being weak, because the demand is gradually disappearing,” he said. “I think the Fed and FOMC may spend more time understanding what a full recovery in the labor market means.”
He said that the Fed will have to adapt to a lower participation rate. “This has an impact on the unemployment rate, should we compare it with the unemployment rate before the pandemic,” he said.
But the employment report will also be judged by investors and focus on what it means for Fed policy. Financial markets are sensitive to any nuances that help determine the timetable for the central bank to complete the bond purchase plan, which is now expected to end in June 2022.
Once bond purchases are over, the door for the Fed to raise interest rates will open.
Due to higher-than-expected inflation, Swank has always expected the Fed to accelerate the pace of reducing debt purchases, so the wage part of the employment report will also be very important. “We are not experiencing a spiral in wage prices… but this is exactly what the Fed fears we can achieve,” she said.
David Petrosinelli, a senior trader at InspereX, said that unless very strong or very weak, employment reports are unlikely to have a significant impact on the market.
He said: “I think this market is more inclined to a stronger number, which shows that interest rates have a certain amount of room to rise.” Petrosinelli pointed out that the benchmark 10-year Treasury bond yield was 1.44% on Thursday afternoon. The rate of return is the opposite of the price.
“You can look back last week, it was 1.70%,” he said, referring to the 10-year yield. “I think that’s the upper limit there. If you get a very strong number, we can go back there directly, despite being limited by the juggling of this new variant.”
After the initial report on the omicron variant of Covid last Friday, the yield dropped sharply.
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