Here’s what the market will be looking for in Friday’s key jobs report

While the economy is supposed to slow, Friday’s jobs report is expected to show that employers actually increased the pace of hiring in November.

Not that there’s anything wrong with that. A growing economy is a good thing, and nothing supports that better than a strong job market. Economists surveyed by Dow Jones expect the Labor Department to report nonfarm payrolls increased by 190,000 last month, up from 150,000 in October.

But investors and policymakers were expecting things to slow enough to at least allow the Fed to put an end to this cycle of rising interest rates as inflation subsides and the employment supply-demand mismatch recedes.

A hot jobs report could undermine that confidence, putting an end to the buoyant mood on Wall Street.

“There is some risk to the upside due to the return of auto workers who were on strike,” said Cathy Jones, chief fixed income strategist at Schwab Center for Financial Research. “So the jobs market looks steady but slowing.”

Payroll growth averaged 204,000 over the past three months, a strong increase albeit well below the 342,000 level for the same period in 2022. However, over the past 12 months the unemployment rate rose by just 0.2 percentage points to 3.9%, up down from where it was earlier in the year but still a feature of a strong economy.

However, there are a number of dynamics at play in the current picture that make this week’s report, which will be released at 8:30 a.m. ET, so important.

Perhaps the most important data point outside of the headline numbers is wages.

Average hourly earnings are expected to show an acceleration of 0.3% from October and 4% over the 12-month period, according to Dow Jones.

The average level of annual hourly earnings is not in line with the Fed’s 2% inflation target, but it is far from its March 2022 peak of 5.9%. Getting wage growth to a sustainable level is vital to lowering inflation, so anything more pronounced could generate a market reaction.

“When you’re trying to measure supply and demand, price is probably the most accurate way to look at it, and you know wage growth has slowed considerably,” Jones said. “So it tells you that supply and demand are back on track.”

Beyond wages, the headline unemployment rate may be subject to some additional scrutiny.

Although the unemployment number has risen more gradually than a year ago, it is up half a percentage point from its recent low of 3.4% in April.

The big difference is that the time-tested indicator is known as Arrow rule It shows that when the unemployment rate rises by half a point from its recent low on a three-month average, the economy is in recession.

However, even the rule’s author, economist Claudia Sahm, said there are no guarantees that will be the case this time, although there are certainly warning signs.

“There’s a logic to that…once the unemployment rate starts rising, it often continues to rise, gets stronger and forms a feedback loop,” Sahm said recently on CNBC. “That’s why a slight increase in the unemployment rate can be really bad news, because it’s persistent.”

Other data this week showed some volatility in the labor market.

Employment opportunities are at their lowest level in two and a half years, and ADP reported that private salaries grew gradually. Although continuing unemployment claims are down, they are on the rise.

However, workers returning from strikes in the auto and Hollywood industries could boost November’s total by as much as 38,000, according to Goldman Sachs. In fact, the company’s economists expect the report to be well above Wall Street estimates – a total of 238,000, which may raise some tension due to its potential to tighten the Fed’s stance.

Neil Costa, founder and CEO of recruitment marketing company HireClix, said he has seen a slowdown in job postings.

“We’ve definitely seen a slowdown happen this year,” he said. “It started in the first part of the year, and we saw people pulling back on their recruitment advertising dollars, without a doubt.”

However, he said pockets of the labor market remain strong, citing health care specifically, while he saw a slowdown in transportation, logistics and manufacturing. Costa is looking for the slowdown to continue in 2024, although nothing corresponds to a deep recession.

“People are being very cautious at this particular point,” he said.