November's Jobs Report Crushes Expectations and the Stock Market Soars
The Jobs Number Blew Away Forecasts
On December 6, the Labor Department reported that the U.S. economy created 266,000 jobs in November. This far outstripped economists' median projections that the economy would add 180,000 new jobs in the month. The Labor Department also reported that the unemployment rate fell to 3.5 percent overall. This ties for the overall lowest jobless rate in the last 50 years. Not only did the government report a strong result for November, but it also upwardly revised the previous months' job creation number. The entire picture painted is a rosy one for the U.S. economy.
The stock market, which has been expecting a slowdown in new hiring as the effect of Federal Reserve interest rate hikes becomes felt, was surprised by the number. In some cases, a strong jobs number is a negative for the equity market since it leads investors to believe that interest rates will rise to prevent an uptick in inflation. Here, however, the strong jobs number has give investors hope that the economic growth can keep going as the economic expansion nears the start of its second decade. Since the Federal Reserve has indicated that its rate-cutting cycle was nearing a close, the strong jobs numbers may show that the Fed's measures have been successful to stimulate continued economic growth.
Previous Talk of Doom has not Materialized
There was strong talk that businesses had slowed hiring in recent months as they deal with the uncertainty of the trade war with China. There are numerous other uncertainties with the global economy and geopolitics that have threatened to slow job growth. However, the recent numbers suggest that businesses remain confident in spite of these headwinds.
Some of the November jobs number was skewed by the fact that many of the jobs that were counted as created were actually striking General Motors employees that were returning to work. Not only did these workers return, but the end of the strike also had positive effects on secondary injuries such as auto parts and other manufacturing. Nonetheless, the jobs numbers was still well ahead of estimates even removing the G.M. jobs. In general, manufacturing was a strong area of this month's jobs report.
The U.S. Economy in 2020
The question is where this blowout jobs number leaves the economy going forward. Jobs have been one of the primary drivers of the last several years of economic growth, and now they show no signs of weakening. At the same time, the strong hiring will help shore up consumer spending, which had been showing some signs of stress recently.
One one level, this job number likely means that the Fed is done cutting interest rates for now. The current job growth has been good for the economy since it has not been accompanied by the rising inflation that occurs when wages rise sharply. Right now, wages are slowly increasing without spiraling out of control. As a result, the Fed does not need to further stoke the job market since wages may eventually rise to the point of stirring up inflation. Currently, inflation is running at or below the Fed's target rate, leaving no worry on the upside for the economy.
The Fed is scheduled to hold a meeting on December 11, and analysts expect the Fed to leave its forecasts for the economy unchanged. The Fed is not expected to cut interest rate at this meeting as it had previously telegraphed that it was largely done with its rate cuts. However, the perception is that the risks to the economy remain to the downside. In the event that the Fed must make a future rate adjustment, experts believe that it would most likely be a further cut of rates.
In any event, the recession that had been forecast for 2020 may be further away on the horizon than predicted if it even happens at all.