Weak Jobs Picture Strengthens Case for Fed Easing

Weak Jobs Picture Strengthens Case for Fed Easing

• Services and manufacturing surveys show hiring stabilized in November.

• Labor gains this year continue to fall behind pace.

• The slowdown will increase pressure on the Fed to cut rates in December.

The employment picture showed few signs of a rebound in November…

The Federal Reserve is about to receive its last employment report before the December 9–10 monetary policy meeting. Today, payroll processor ADP will release its monthly hiring data for November. Wall Street expects an increase of 7,000 jobs, down from a gain of 42,000 last month. If that’s the case, it will be a disappointment compared to the average November surge of 216,000 jobs since 2011. It would cement 2025 as the weakest hiring year in more than a decade…

Normally, the U.S. Bureau of Labor Statistics would release November payroll data on Friday. But due to the lengthy government shutdown, those numbers won’t be available until after the Fed meets. That brings added importance to the ADP figures.

Based on recent Federal Reserve business surveys, the hiring trend remained weak last month. If national data confirms the slowdown, it strengthens the case for another rate cut from the Fed in December. Such a move should underpin a steady rally in the S&P 500.

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

Each month, several regional Fed banks survey manufacturing and services firms to gauge business activity. I focus on the employment and inflation components from the Dallas, Kansas City, New York, and Philadelphia Fed banks. Together, they represent about 32% of U.S. GDP. These surveys offer an early read on national trends, especially since they’re released ahead of market-moving reports like ADP and BLS payrolls.

Today, I’m zeroing in on employment. Let’s break down the components before zooming out to the bigger picture.

Starting with manufacturing…

The chart above tracks hiring trends over the past seven years. After the pandemic collapse, factory hiring surged. Since then, the pace has gradually eased. On the right side of the chart, you’ll see manufacturing employment held steady for most of this year. After a dip in September, it appears to have rebounded over the last couple of months. Still, even though it’s improving, the manufacturing sector makes up only a small part of the national employment picture.

More importantly, the services sector fared worse…

According to the Fed data, hiring was weak last month, with the gauge remaining in negative territory. Activity worsened noticeably in New York and Kansas City while Dallas and Philadelphia saw a slight rebound. And it wasn’t just hiring; items like revenue, capital spending, and overall activity eased.

To get a clearer national picture, I combined the manufacturing and services data into a single gauge, weighted 80% services and 20% manufacturing, in line with the domestic employment breakdown. I also weighted each district by its GDP contribution…

As you can see, after a brief mid-year bounce, the overall hiring picture has stayed weak. My combined index shows employment contracted again in November, driven by services.

Now, let’s look at the combined Fed employment gauge compared to ADP payroll data for historical perspective…

In the chart above, I used a three-month rolling average to smooth out volatility and better capture the trend. The Fed survey tends to lead national hiring. The three-month average rose at the start of this year, just ahead of a strong payroll report. But it has remained under steady pressure since. In November, the Fed survey employment average contracted but is showing signs of stability as the pace of drop eased.

Bottom line: National employment trends are still weak. If ADP confirms this, it’ll show hiring continues to fall short of historical norms.

And if that happens, Wall Street should grow more confident in the odds of another rate cut by year-end. Lower rates would reduce borrowing costs, free up cash for households and businesses via lower interest payments and support economic growth. That would help sustain the long-term rally in the S&P 500.

Five Stories Moving the Market:

Marvell Technology said it’s now more bullish about revenue growth next year and predicted that custom chip sales will increase 20%; management said large customers have renewed orders, and there won’t be a repeat of previous “air pockets,” when sales in that unit have declined – Bloomberg. (Why you should care - CEO Matt Murphy indicated revenue could reach $10 billion in the next fiscal year compared to Wall Street’s estimate for $9.5 billion)

The Trump administration canceled a slate of interviews set to start this week with a group of finalists to be the next chair of the Federal Reserve as President Trump suggested during a cabinet meeting he had made up his mind about who should lead the central bank – WSJ. (Why you should care – the prevailing narrative is that National Economic Council Chair Kevin Hassett, a noted dove, will be awarded the post)

Shipments of U.S. crops to China are accelerating after a tense tariff war had stalled trade for months, with at least six bulk cargo vessels scheduled to load with soybeans at Gulf Coast terminals through mid-December – Reuters. (Why you should care – this is another sign the U.S. and China are honoring the trade agreement reached in late October)

Amazon’s AWS cloud computing unit said it will adopt key Nvidia in future generations of its artificial intelligence computing chips as the firm ramps up efforts to attract major AI customers to use its services; the NVLink technology allows AWS to build bigger AI servers that can recognize and communicate with one another faster – Reuters. (Why you should care – Intel, Qualcomm, and AWS are all now using the NVLink technology)

Nvidia CFO Colette Kress said almost all of the Graphic Processing Units the company is shipping today are additive, and not replacements for existing hardware; she said the installed base remains intact, while new GPUs stack on top – UBS Global Tech Conference. (Why you should care – this pushes back against the current short narrative that customers are having to rapidly replace Nvidia AI chips, driving up costs)

Economic Calendar:

Earnings: AI, CRM, DLTR, M, SNOW

ECB’s Lagarde (President) Speaks (3:30 a.m.)

Eurozone – HCOB Eurozone Services, Composite PMI (Final) for November (4 a.m.)

U.K. – S&P Global U.K. Services, Composite PMI (Final) for November (4:30 a.m.)

ECB’s Lane (Chief Economist) Speaks (5:30 a.m.)

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

U.S. – ADP Employment Change for November (8:15 a.m.)

U.S. – Export, Import Price Index for September (8:30 a.m.)

U.S. – Industrial, Manufacturing Production for September (9:15 a.m.)

U.S. – S&P Global U.S. Services, Composite PMI (Final) for November (9:45 a.m.)

U.S. – ISM Non‑Manufacturing PMI for November (10 a.m.)

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

ECB’s Lagarde (President) Speaks (10:30 a.m.)

Treasury Auctions $69 Billion in 17-Week Bills (11:30 a.m.)

BOE’s Mann (Board Member) Speaks (12 p.m.)