On the October/November Jobs Report

Two months of payroll data released at once show a 105,000 contraction in October followed by a 64,000 expansion in November. We now have three months this year of payroll contraction – June, August and now October. Historically this has been a reliable indicator of the onset of recession, but we don’t think it is this time. There’s no other evidence for it, and it arises from an easily observable exogenous shock to the labor market – the hard-stop in immigration and the large scale self-deportation that has occurred since the March peak of an historic immigration wave. With many immigrants leaving, and taking their jobs with them, it is surprising there is so little evidence of contraction of economic activity – their exodus physically shrinks the size of the economy. The likely explanation is that we are in a post-pandemic productivity-led boom in which we have acquired the habits and disciplines and knowledge to do more with fewer hours worked. This morning’s data has not moved market expectations for rate cuts, as indeed it should not.