In the early days of December, the United States Department of Labor made notable announcements pertaining to employment statistics from NovemberThe data revealed a significant increase in non-farm payrolls, with an impressive addition of 227,000 jobs—marginally surpassing the expectation of 220,000. This figure is particularly striking when compared to the minuscule growth of just 12,000 jobs reported for OctoberThe private sector also demonstrated a positive trend, contributing 194,000 new jobs, a sharp rebound from the prior figure that reflected a loss.

However, the unemployment rate ticked up to 4.25% from 4.14% in October, reflecting a slight rise of about 0.1 percentage pointsCorrespondingly, the labor force participation rate saw a drop of 0.1 percentage points, resting at 62.5%. In the wake of this data release, it became evident that market sentiments shifted dramatically, with expectations for a rate cut by the Federal Reserve in December swelling from 71% to a staggering 91%. Following the news, major U.S

stock indices responded positively— the S&P 500 experienced a 0.10% increase, the Dow Jones rose by 0.13%, and the Nasdaq climbed 0.22%. Additionally, U.STreasury rates witnessed downward movements, with the yield on the 10-year Treasury note dipping approximately 9 basis points to a low of 4.126%, while the 2-year Treasury yield fell around 14 basis points, resting at 4.081%. This fluctuation was mirrored in a 'V' shaped trajectory of the U.Sdollar index, which fell approximately 40 points to 105.42. Meanwhile, gold futures on the COMEX saw an uplift of about 0.6%.

When analyzing the non-farm payroll data, several crucial considerations emergeFirstly, data reflecting corporate surveys indicate a rebound in the U.Slabor market, recovering from the impacts of hurricanes and strikes that had previously disrupted normal employment trendsThe November increase of 227,000 jobs marks a significant recovery from an average of only 123,000 jobs added over the past three months

• Capitalizing on Underperforming Assets in the Recovery
• Global Oil Giants Announce Sudden Cut!
• What Happens if Bank Deposit Rates Drop to Zero?
• Will the Fed Extend Rate Cuts?
• Boosting Consumption to Drive Growth

An industry-wise breakdown reveals a mixed bag: while non-durable goods and retail sectors struggled with losses of 28,000 and 4,000 jobs respectively, sectors such as healthcare and social assistance saw considerable growth, adding 79,000 and 53,000 jobs, respectivelyManufacturing also made a comeback, adding 22,000 jobs which is a notable recovery from the loss of 48,000 in OctoberWithin manufacturing, the transportation equipment sector contributed an increase of 32,000, as workers previously affected by strikes re-entered the workforce.

On the flip side, household survey data painted a contrasting picture with an unexpected uptick in the unemployment rateAs the non-farm payroll data suggested a recovery driven by prior disruptions, analysts shifted their attention towards the rising unemployment rate, heightening the market's anticipation for rate cutsThis unemployment rate increase, from 4.145% to 4.246%, is dangerously close to the annual peak of 4.253% seen in July

The household survey indicated a decrease of 355,000 jobs in November, coupled with an increase of 161,000 in the number of unemployed individualsA look back on similar trends in February and May reveals a pattern of cyclic fluctuations.

When contemplating the contrasting signals from the two surveys, it is essential to recognize several factors influencing the labor marketThe cyclical demand softening process appears to be somewhat cushioned by anticipated rate cuts, as evidenced by indicators of a recovery in small business conditionsFurthermore, disruptions from hurricanes and strikes have caused significant volatility in non-farm payroll data between August and November, potentially obscuring the underlying trendsCompounding these complexities, recent restrictions imposed by the government on asylum applications from Mexican border immigrants may lead to contractions in the labor supply within lower-end service sectors

Overall, while the recent labor market data shows an increase of 175,000 jobs, trailing slightly behind the average over the past six months of 204,000, the contraction in supply remains relatively unnotableBy examining indicators such as job vacancy rates, layoff rates, and long-term unemployment statistics, one can filter out short-term disturbancesThe numbers still indicate America’s labor market is experiencing a cyclical downturn, and, contrary to assumptions, rate cuts have not reversed this trend.

Another aspect worth discussing is the gradual deceleration of wage growthIn November, the month-on-month increase in private sector hourly wages stood at 0.37%, a slight drop from 0.42% in October and a bit lower than the three-month average of 0.39%. Industry analyses show a pronounced slowdown in hourly wage growth for goods-producing jobs, which fell 0.19 percentage points to 0.14%. Meanwhile, wages in the service sector have demonstrated resilience despite a minuscule decrease of 0.03 percentage points to 0.42%. Retail, for instance, experienced a rebound with a 0.85% rise in hourly wages over the month; however, this occurred amidst declining employment numbers— losses of 4,000 jobs in October and 28,000 in November

The wholesale sector also saw a wage increase of 0.29 percentage points to 0.45%. These elevated wages in retail and wholesale indicate that consumer market demand remains robustIn sectors with lower labor skill requirements such as leisure and hospitality, wage growth mildly bounced back by 0.09 percentage points to 0.36%, while education and healthcare services experienced a slowdown to 0.20%. Overall, total private-sector wage growth year-on-year was 5.11% in November, slightly above the three-month average of 5.02%, indicating a stagnation in America’s disinflationary process.

Looking ahead, it appears that the Federal Reserve may implement a 25 basis point rate cut in DecemberFollowing the release of non-farm payroll data, the probability of such a rate cut has surged significantly, with CME FedWatch suggesting the likelihood now stands at approximately 90.5%—a hefty leap from the prior estimation of 71.0%. It seems almost certain that the Fed will opt for a rate cut rather than a pause in its current strategies.

The market sentiment also reflects a slight resurgence in expectations for two rate cuts in the first half of next year

Based on the dot plot from the Fed’s September meeting, a 100 basis point reduction is forecasted for 2025, indicating a potential 50 basis point cut in the first halfHowever, the market expectations had been trending downwards since OctoberAs of December 5, the predicted cuts for early 2025 had reduced to just 36 basis points, before recovering to 44 basis points following the release of recent non-farm dataThis figure remains shy of the 50 basis points indicated in the dot plot from the Federal Reserve.

Concerning the broader context of disinflation in America for 2025, potential policy disturbances could play a crucial roleCertain government measures, such as tariffs and immigration policies, could inadvertently spur inflationary pressures, while energy policies may exert downward influence on energy pricesAdditionally, the nominee for Secretary of the Treasury, MrBasant, has promised to reduce the deficit ratio, which could contribute positively towards mitigating inflation