Nonfarm Payrolls November 2024

The article “Nonfarm Payrolls November 2024” first appeared on Total Wealth Partners blog

December 6, 2024

We are back with our last bit of coverage before we close the books on 2024 and welcome the arrival of 2025. We have A LOT on our holiday plate this morning (figuratively speaking), so let’s dig in! November jobs rebounded after a drubbing in October. According to the Bureau of Labor Statistics, 227,000 new jobs were created last month. Much of the “October surprise” in Laborland was hurricane and strike related, meaning the headline print of 12,000 lacked relevance and was likely to be significantly revised in relative terms at the very least. Naturally, that proved out in the November report—36,000 October jobs vs 12,000 originally reported. More talk of multiples below, but these revisions from BLS bring us to a more important number… the US economy has created ~203,500 jobs per month over the past year, taking today’s reading at face value. We have mentioned this from time to time, but markets LOVE 200K in Laborland; it tends to be indicative of a labor market that is neither too hot nor too cold. Last month’s reading bears this “Goldilocks scenario” out— wage pressures remain largely inline with expectations and unemployment is behaving itself. Moreover, labor demand, as measured by JOLTS, has receded to pre-Covid levels. Christmas appears to have come early for Mr. Powell. Not to dampen the holiday cheer, but this question remains: why is affordability such an issue for the vast majority of American households? The short answer is many US consumers don’t buy the good news.

According to the University of Michigan, American households see inflation clipping along at ~3% annually for the next 5 years. This is well beyond the Fed’s target of 2%, and yet we have seen the FOMC cut rates by 75 bps this fall and markets are pricing another 25 bps before yearend! Affordability is an issue because what is relevant to the Fed is not necessarily what is relevant on Main St. By some measures, the average US household is still enduring budget wrecking inflation— credit card balances are a concern. Meanwhile, option-adjusted spreads on investment grade debt are substantially below pre-pandemic levels, underscoring the dichotomy among “would be” borrowers. Reducing the fed funds rate will provide some relief to consumers in the near-term. After all, the Fed is keen to avoid a credit crisis in any shape or form. However, the fact is the American affordability issue is a structural one, and Mr. Powell seemingly lacks the fortitude for structural change. Speaking of changes…

November certainly brought plenty of changes to Capitol Hill. Now that the political dust has settled we are anxiously awaiting what policies will underpin the new administration’s economic agenda—both foreign and domestic. The world is a MUCH different place than it was in 2016. Let’s take a quick stroll down Memory Lane… At that time Janet Yellen was struggling to move inflation back to 2%! ISIS was a source of instability in the Middle East, and Vladimir Putin seemed content to “take the win” in Crimea. Kim Jong Un was the nuclear provocateur of the day, and OPEC was in the throes of a yearslong war with US shale. We would assume that Mr. Trump’s policies will be similar to those enacted during his previous term in office, but there must be nuances to accommodate the changes in the economic and geopolitical landscape if he is to be successful. Having a “Red Hill” in your corner is one thing, but navigating the current domestic and global environment will take more than bravado and past success. Effective policies will be the key—there has been plenty of chatter since the election about what those policies might be, but let’s see what actually happens in the halls of Congress and the Oval Office before making too many assumptions.

Switching gears a bit, earnings season did not disappoint, and we expect more of the same from corporate America in Q4. Our S&P operating profit estimate for yearend is little changed at $244.50/ share, which represents double digit YoY earnings growth consistent with our base case. We think next year’s growth trajectory will be comparable. However, the most important thing is the multiple! We are going with a bold prediction that 25X operating earnings is now justified, which puts TWP’s “first look” S&P 500 ’25 target at 6800. Much more to come on that in the new year and happy holidays to all!

News Release: Bureau of Labor Statistics (The Employment Situation- November 2024)