Payroll Report for November

November saw a strong recovery in payrolls, with a 227,000 gain surpassing consensus expectations of 220,000, and net upward revisions of 56,000 for prior months.

In a note to clients reacting to the data, Morgan Stanley (NYSE:MS) noted this pushed the three-month payroll average to 173,000, exceeding trends from the second and third quarters.

The bank stated that the report indicates robust employment growth, consistent with expectations for solid GDP in the fourth quarter. They noted, "A solid rebound in payrolls and upward revisions are consistent with strong output & consumption growth in 4Q."

Aggregate hours worked rose at an annualized 0.5% rate, matching the pace of Q3, while aggregate payroll incomes accelerated at a 5.5% annualized rate, supporting strong consumer spending, according to the bank.

Morgan Stanley observed that professional and business services payrolls rebounded less than anticipated, but manufacturing payrolls reflected the return of Boeing (NYSE:BA) workers. Additionally, leisure and hospitality saw a sharp recovery, likely due to post-hurricane reopening in Florida.

However, the report also indicated some softer trends, including a rise in the unemployment rate to 4.246%, partly due to slower hiring and a slight decline in labor force participation.

Retail payrolls fell by 28,000 despite strong holiday hiring plans, possibly affected by the late Thanksgiving.

Morgan Stanley concluded that the data reflects a labor market that remains strong but shows signs of slight cooling, as seen in marginal declines in the employment-to-population ratio and labor force participation.

The bank stated, "We continue to expect 25bp in Fed fund rate cuts in December." They emphasized that the Fed remains data dependent, noting that inflation prints would be most likely to change the Fed's path, which they expect to be tame enough to allow for further rate cuts.