JOLTS Drops, ADP Misses — The Labor Market Is Cracking

• ADP data showed business added just 41,000 jobs in December.

• JOLTS numbers showed there are now more available workers than jobs.

• These numbers point to policy that's still too tight.

If you’re looking for signs of a stronger job market, December didn’t deliver them…

Earlier this week, I laid out my view on where the labor market is heading. I walked through the forward‑looking indicators I use to gauge what Friday’s payroll report might show. The data pointed to one clear takeaway: the labor market showed little sign of improvement in December.

That’s why I expect the U.S. Bureau of Labor Statistics (“BLS”) report at the end of this week to echo the same message. Even if it matches Wall Street’s forecast for a gain of 57,000 jobs, that’s still far below the typical December increase of 251,000 since 2015. And it would mark the weakest hiring year in a decade.

December is usually a strong month for job seekers, but yesterday’s updates from both the BLS and payroll processor ADP confirmed the trend I highlighted. Job openings and hiring are slipping, which strengthens the case for more rate cuts this year and helps fuel the ongoing rally in the S&P 500 Index.

But don’t take my word for it, let’s look at what the data’s telling us…

The BLS Job Openings and Labor Turnover Survey (“JOLTS”) data for November showed the number of available employment opportunities fell to 7.2 million from 7.5 million in October. That’s a drop of about 5 million from the March 2022 peak…

However, what’s even more important is when we compare that data to the number of unemployed people. By observing that ratio, we can get a sense of whether the job market is tightening or loosening. If it’s tightening, that means employees are harder to find, driving up wages. But if it’s loosening, more people are seeking work, keeping a lid on pay.

In November, there were just over 7.8 million individuals without gainful employment. That means there are roughly 0.9 jobs available for each individual seeking work. The ratio hasn’t been this low since March of 2021…

Hiring momentum is also fading, with the pace of new hires hitting its weakest level since the pandemic…

At the same time, ADP released its monthly hiring data for December. According to its estimates, companies brought on 41,000 new workers last month. That’s on the heels of 29,000 jobs lost in November. More importantly, it’s far below the typical December gain of 221,000 since 2011…

These signals matter because they shape how the Federal Reserve responds. The numbers are telling our central bank that the labor market continues to weaken. Policymakers have said they want to give recent rate cuts more time to work. Typically, that window is around six to eight months.

But our central bank can’t ignore a weakening labor market. If it waits too long, it could be forced to take more drastic steps. So, being proactive now would be far better and require less easing.

We can tell how much room our central bank has to stimulate economic growth by looking at the real rate of interest (effective federal funds rate minus inflation). A positive number means policy is weighing on price growth, while a negative number means rates are stoking inflation. According to the most recent Consumer Price Index (“CPI”) figures, the Fed has plenty of room to offer support…

In November, the effective federal funds rate was roughly 3.9% while inflation growth stood at 2.7%. When we subtract one from the other, we see the Fed has about 120 basis points of rate cut room before it hits the so-called neutral level, where rates are neither hurting nor helping economic growth. And if we consider our central bank has managed that real rate to an average of -0.6% since 2000, it implies it could lower rates another seven or eight more times before stopping.

Bottom line: if Friday’s BLS report lines up with the trends we’re seeing, Wall Street will likely grow more confident in expecting two more rate cuts by the end of 2026. And with plenty of room to ease further, lower rates through 2027 should help reduce borrowing costs, free up cash, and support economic growth—fueling a steady, long‑term rally in the S&P 500.

Five Stories Moving the Market:

The largest U.S. banks are expected to report bigger fourth quarter profits next week, fueled by a surge in investment banking revenue as dealmaking accelerates – Reuters. (Why you should care – the financial sector has the second largest weighting in the S&P 500 Index and positive results should boost the dividend and buyback outlook)

Samsung Electronics projected a three-fold jump in fourth-quarter operating profit to a record high as tight supply and a surge in artificial intelligence-driven demand stoked prices for conventional memory chips – Reuters. (Why you should care – the results should bode well for other high bandwidth memory makers like SK Hynix and Micron, due to strong demand for AI infrastructure goods)

President Donald Trump demanded the U.S. boost annual defense spending by more than 50% to $1.5 trillion for 2027, an unprecedented jump that he said would be paid for by revenue brought in by the tariffs imposed over the last year – Bloomberg. (Why you should care – increased military spending would help to offset Trump’s call for less share buybacks and dividends)

U.S. President Donald Trump said he was taking steps to ban large investors from buying more single-family homes, a move that would represent his administration’s first significant action to address the U.S. housing crisis – WSJ. (Why you should care – the move could help to keep a lid on housing prices, weighing on inflation growth in the process)

President Donald Trump said he wouldn’t allow defense companies to issue dividends or buy back their own stock until they invest more in production and research; Trump said executive pay at defense companies should be capped at $5 million until they build what he called “NEW and MODERN Production Plants” – Bloomberg. (Why you should care – greater investment and plants and production would likely boost jobs but weigh on sector valuations in the near term)

Economic Calendar:

Australia – Exports, Imports for November

Japan – Overall Wage Income for November

Japan – Household Confidence for December

Eurozone – German Factory Orders for November (2 a.m.)

Eurozone – French Exports, Imports for November (2:45 a.m.)

Swiss National Bank Monetary Policy Assessment (3:30 a.m.)

ECB’s De Guindos (Vice President) Speaks (3:30 a.m.)

Eurozone – Consumer Confidence for December (5 a.m.)

Eurozone – PPI for November (5 a.m.)

Eurozone – Unemployment Rate for November (5 a.m.)

U.S. – Challenger Job Cuts for December (7:30 a.m.)

U.S. - Initial Jobless Claims (8:30 a.m.)

U.S. - Continuing Claims (8:30 a.m.)

U.S. – Exports, Imports for October (8:30 a.m.)

U.S. – Unit Labor Costs for Q3 (8:30 a.m.)

Canada – Exports, Imports for October (8:30 a.m.)

U.S. – Wholesale Inventories for October (10 a.m.)

U.S. – NY Fed Consumer Inflation Expectations for December (11 a.m.)

U.S. – Consumer Credit for November (3 p.m.)

Fed's Balance Sheet Update (4:30 p.m.)