The uptick in the unemployment rate should not detract from what was otherwise a solid payrolls report. Non-farm payrolls climbed 227k in November, and the average 3-month change firmed to 173k. The direction of revisions was notable too, with a combined upward revision of 56k to September and October. Payrolls growth in the region of 173k, may be enough to put downward pressure on the U3 rate in 2025.
Indeed, gauging the strength of a payrolls number, depends very much on assumptions made about labour supply. The surge in immigration and rising labour force participation rates, both helped to rebalance the labour market this year. But some of these trends are running their course. The expansion in the civilian labour force has slowed, up just 0.1% y/y in November. The labour force participation rate has also stopped rising.
If anything, the most recent wage & inflation data are more consistent with a labour market that is once again tightening, and no longer loosening. Average hourly earnings climbed by a 3-month annualised rate of 4.50% in November. According to the latest NFIB small business jobs report, hiring plans ticked up last month, and compensation plans also jumped.
With both wage growth and PCE services (ex-energy) inflation (3.87% in October) running at around 4%, core PCE inflation (ex-food & energy) remains well above target (2.80% in October). Further m/m gains in the core PCE price index of 0.23% and 0.24% in the last two months of this year, as nowcast by the Cleveland Fed, will push the y/y rate up to 3.00% in December.
