The Employment Situation Report, produced by the Bureau of Labour Statistics, covers the nonfarm payrolls, unemployment rate, wage growth, employment-population ratio and labour force participation, making it one of the most important data releases concerning the labour market for the month.
Non-farm payrolls increased by 199,000 for November, higher than economist expectations of 180,000 and 44,000 above last month's reading of 150,000. The growth was below the 12-month average of 240,000 but aligns with the recent trends in the market.
The U3 unemployment rate, otherwise known as the headline rate, decreased from 3.9% to 3.7%, more than economist expectations of 3.9% and representing 6.3mn currently unemployed but searching for a job.
The employment-population ratio increased to 60.5% while the labour force participation rate stayed constant at 62.8%. Additionally, the report noted that there was little change in the number of persons not in the labour force who currently want a job.
Wage growth MoM increased by 0.4%, higher than the 0.2% reading last month and also higher than economist expectations of 0.3%.
When analysing the numbers, it is clear this blindsided expectations with better-than-expected figures, indicating the market may have gotten ahead of itself by forecasting rate cuts earlier than previously estimated. This, in turn, is likely to disrupt the rise in risk-on assets such as equities and bitcoin but also risk-off assets such as gold and fixed income. This is because, high interest rates for longer impact the forecasted cashflows of companies as well as consumer spending, making it more plausible for profit margins to stay squeezed for longer and therefore reducing the companies' present value. For risk-off assets, higher for longer rates suggest fixed income is still more attractive than non-yielding assets such as gold and bitcoin, thus, reducing incentives to buy such assets. With that said, there are many more factors influencing gold and bitcoin than just interest rates. Going forward, more higher-than-expected labour market data may push the FED to raise rates, though highly unlikely, thus, what is more probable is that rates will have to stay higher for longer to loosen the job market and deter a wage-cost spiral.
One last note, the report did mention that households have found it harder to pay basic expenses due to their outlays outpacing their inlays (spending > income. This not only displays a cracking outlook on equities but also the overall stability of the economy.
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