Financial markets liked the November jobs report. Employers created 227,000 new jobs during the month, slightly more than economists expected. That was a healthy rebound from October, when strikes and hurricanes depressed hiring. Stocks ticked upward on hopes that a Goldilocks employment scenario will still allow the Federal Reserve to trim interest rates.
There may also be signs, however, that a cooldown is underway, with frostier days ahead. The year-over-year pace of job creation has been declining since 2022, and by some measures it’s at worrisome levels that can signal the onset of recession. “The labor market, at the margin, is weakening,” economist David Rosenberg of Rosenberg Research wrote in a Nov. 6 analysis. He thinks the upbeat monthly job report masks a “growth downturn” and a weaker economy than markets perceive.
The Labor Department’s monthly employment surveys show that the number of jobs grew by 1.4% during the last 12 months. That’s a sharp slowdown from the pace of job growth during the COVID recovery, as the first chart below shows. But it’s close to the average from 2012 through 2019, when the economy grew steadily. If job growth stays at that level, the economy should be fine.
The worry is that the hiring slowdown could get worse. Some economists think the Labor Department’s monthly job surveys have methodological flaws that make them an unreliable gauge of the job market’s health. There’s a much broader analysis of the labor market that comes out quarterly and may be more accurate. That data, seen in the next chart, shows a sharper drop in hiring activity.
In the more thorough quarterly data, hiring is up just 0.8% year over year. And the last reading is from July, which doesn’t capture the weaker jobs numbers of the last few months. Rosenberg notes that the weak pace of job growth in the quarterly data nearly matches the levels from right before the recessions that began in 2007 and 2001.
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There’s also anecdotal evidence of a labor market chill. In its latest monthly analysis of economic conditions, the Federal Reserve cited “subdued” hiring across the country and said “few firms reported increasing their headcount.” The unemployment rate also ticked up by one-tenth of a point in November to 4.2%.
A recession is not right around the corner. Holiday spending looks solid, and the stock market has been setting new record highs on hopes for a friendlier business climate once Donald Trump becomes president in January.