On the November Jobs Report

A beat in payrolls, with 199,0000 net gains. But employment in the “household survey” grew by an enormous 747,000 (still 483,000 on a “payroll basis”). The labor force expanded by 532,000, more than all of whom were immediately employed, driving the unemployment rate down from 3.9% to 3.7%. This resoundingly contradicts consensus recession expectations. Clearly the Fed has not been as tight as it apparently has thought. At the margin this reduces any urgency to cut rates, but is surely insufficient to make a case for hiking them. November CPI will be available to the Fed before next Wednesday’s FOMC, and it will show a second month of outright deflation. In this setting, the curve this morning has taken away half a rate cut for 2024, but the first cut is still fully discounted for the May FOMC. We continue to think it comes in March when deflation is more conspicuous.