While the headline November payroll increase of 199,000 looked robust on the surface, the underlying components indicate significant softening in the labor market and bode well for a soft landing, asset managers said.
"Strikers coming back to work represented 47,000 and another 49,000 were government jobs and absent those two categories only 103,000 jobs were added," Johan Grahn, head of ETF strategy at Allianz Investment Management, said. "If you further strip out the 93,000 health care and social assistance jobs then the result is that only 10,000 jobs were added by the broader market which is arguably a better representation of a true labor market temperature check."
Grahn also said that with a labor market that is softening the Federal Reserve can take a step closer to discussions about a policy shift, but with the unemployment rate at 3.7% there is also good reason for caution.
"While the market is pricing in five rate cuts in 2024, potentially starting as early as March, the Fed will still need to see further quantitative evidence of a soft landing with staying power," he added. "Given the Fed's ability to use time to its advantage, as long as the economy does not go into an actual recession, there is more reason for them to keep rates steady for longer than to cut."
Allianz IM has $19.5 billion in AUM.