November U.S. jobs report could be a bright spot in fading outlook for hiring

December 4, 2015

Federal Reserve Board Chair Janet Yellen testifies before the House Financial Services Committee on the "Federal Reserve's Supervision and Regulation of the Financial System" in Washington November 4, 2015.       REUTERS/Gary Cameron  - RTX1UQNK

The U.S. November jobs report is expected shortly, and in all likelihood it will be a solid one. But forecasts around future employment are not quite so optimistic.

The bottom end of the range of forecasts in Reuters polls on non-farm payroll figures for the coming year has been consistently trimmed lower by analysts over the past few months — just 100,000 jobs per month on average in some quarters of next year.

Previous November jobs reports have tended to spring positive surprises. With 200,000 jobs forecast to have been added last month, and with very clear signals coming from policymakers that they are satisfied they have met their mandate for full employment, the U.S. Federal Reserve looks set to hike rates for the first time in nearly a decade on Dec. 16.

Fed Chair Janet Yellen said on Thursday that even 100,000 jobs created a month would be enough to cover new entrants to the workforce.

But the rate of hiring has been slowing. And that trend is set to continue next year, which may provide pause for thought on how the Fed wants to follow up on its first rate rise.

Reuters poll medians for non-farm payrolls, which peaked at 245,000 in March, have been falling steadily and that slide could only stop well into the last quarter of 2016.

Last year 260,000 jobs were created on average every month. That reduced to 206,000 this year and, if forecasts are correct, will fall further to around 183,000 next year.

Some of the most accurate forecasters, like Scotiabank, and some Wall Street dealers like Goldman Sachs and JP Morgan, also see weaker jobs growth in 2016.

NFP forecasts

The Fed already is hoping that an unemployment rate of 5 percent, very low by historical standards, will not need to go much lower to generate the inflation it wants to see, through shortages of available workers.

But so far, average earnings growth has been weak, and is not expected to pick up significantly in the November data. Of the only nine analysts who last provided a long-term forecast for pay growth, most see none or only marginal improvement in earnings growth over the next year.

The current consensus is the Fed will raise interest rates  by 100 basis points next year. But with slowing jobs growth and still very tame pay growth, it may consider a more gradual pace of rate rises.

(With additional analysis by Hari Kishan)

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