Weak Hiring Data Underscore Fed’s Room to Maneuver

Weak Hiring Data Underscore Fed’s Room to Maneuver

• BLS data show just 41,000 net jobs added over the past four months

• The unemployment rate hit 4.6% in November versus a 3.9% average since 2022.

• Real rates suggest five more Fed rate cuts are possible

The U.S. labor market just delivered its weakest four‑month stretch since the pandemic—and the cracks are widening…

Yesterday’s employment update from the U.S. Bureau of Labor Statistics underscored just how weak hiring has become. The revisions and fresh figures were as follows:

• August was revised lower by 22,000 to a loss of 26,000

• September was revised lower by 11,000 to a gain of 108,000

• October experienced a contraction of 105,000

• November saw an increase of 64,000

In other words, the net results showed the economy added just 41,000 new employees over the last four months…

As you can see from the chart above, the downtrend that began earlier this year has now accelerated. To find a month with this scale of job losses, we have to go back to December 2020, when firms braced for a second COVID wave.

ADP’s payroll data tells a similar story:

• August contraction of 3,000

• September loss of 29,000

• October gain of 47,000

• November drop of 31,000

Job-loss months are stacking up as the year progresses. Outside of March, no month in 2025 has come close to historical averages…

The BLS data confirms that 2025 is the weakest labor market since 2015, excluding the pandemic. Average monthly payroll gains this year: 55,000. Compare that to 190,000 in 2015–2019 and 400,000 in 2021–2024…

Consequently, the unemployment rate is climbing:

• November - 4.6%

• October - 4.5% (Chicago Fed estimate)

• 2017-2019 average - 4%

• Average from the start of 2022 - 3.9%

Federal Reserve policymakers like Chair Jerome Powell, Board Members Christopher Waller and Michelle Bowman, and San Francisco President Mary Daly have warned that if the slide isn’t arrested soon, more drastic measures may be required. Their concern: a protracted hiring slowdown risks dragging the broader economy lower. Hence the 75 basis points of cuts since September.

So, what kind of room does the Fed have to introduce more support…

We can observe this by looking at the real rate of interest (effective fed funds rate minus inflation). That gives us an idea of where the neutral level—neither hurting nor helping economic growth—lies. Based on the most recent CPI numbers, the metrics are as follows:

• CPI (September) 3%

• Effective fed funds rate (December) 3.63%

• Real rate 0.63%

• Typical real rate since 2000 -0.6%

Based on the current numbers, the Fed could cut two to three more times before hitting neutral. If it reverts to the long-term average, five cuts are possible

Look, the Fed can take whatever steps it deems necessary to boost economic growth. Based on the numbers we just surveyed, it has plenty of room to act. And if inflation growth starts to slow once more as Powell has suggested, the cushion should grow larger. At the end of the day, that backdrop should underpin a steady, long-term rally in the S&P 500.

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Five Stories Moving the Market:

OpenAI is in initial discussions to raise at least $10 billion from Amazon and use its Trainium AI chips; while the discussion is still in the early stages, such a deal could value OpenAI north of $500 billion – Bloomberg. (Why you should care – a valuation north of $500 billion should be a considerable boost for Microsoft’s 27% stake in OpenAI) 

Japan's exports to the U.S. rebounded for the first time in eight months in November, according to government data; exports to the United States rose 8.8% in November from a year earlier, with shipments of automobiles rising 1.5% and those of pharmaceuticals more than doubling – Reuters. (Why you should care – recent tariff cuts and yen weakness are likely making Japanese goods more competitive from a price standpoint) 

U.S. Treasury Secretary Scott Bessent said there are one or two more interviews this week for the next chair of the Federal Reserve, with a likely announcement by President Donald Trump sometime in early January – Bloomberg. (Why you should care – Trump is expected to meet with Fed Board Member Christopher Waller later today)

Inflationary pressures in Canada appear contained, according to Bank of Canada Governor Tiff Macklem, adding that policymakers remain focused on keeping inflation at or near 2% to preserve households’ purchasing power – WSJ. (Why you should care – Canada was among the earliest central banks to start lowering rates and one of the first to say inflation appears contained)

Sales of equipment used to make computer chip wafers will rise about 9% to $126 billion in 2026 and by a further 7.3% to $135 billion in 2027, as chipmakers expand capacity for logic and memory chips used in artificial intelligence, according to industry group SEMI – Reuters. (Why you should care – Samsung, SK Hynix, and Taiwan Semi, among others, should all be beneficiaries)

Economic Calendar:

Earnings – GIS, JBL, MU

Japan – Exports, Imports for November (12:00 a.m.)

U.K. – CPI for November (2:00 a.m.)

Germany – Ifo Business Climate Index for December (4:00 a.m.)

U.S. - MBA Mortgage Applications (7 a.m.)

Fed’s Waller (Board member, Voter) Speaks (8:15 a.m.)

Switzerland – SNB quarterly bulletin (9:00 a.m.)

Fed’s Williams (New York, Voter) Speaks (9:05 a.m.)

U.S. – Business, Retail Inventories for September (10:00 a.m.)

U.S. - Energy Information Administration Crude Oil Inventory Data (10:30 a.m.)

Fed’s Bostic (Atlanta, Non‑voter) Speaks (12:30 p.m.)

Treasury Auctions $13 Billion in 20-Year Bonds (1 p.m.)