November Jobs Preview: If Unemployment Hits 4.0%, The Recession Begins

Now that the market has made up its mind that the Fed will be cutting as soon as March - something which is clearly news to the Fed judging by not only the dot plot but also all recent Fed public statements - the market will be closely watching tomorrow's jobs report, and especially the ongoing spike in the unemployment rate which is on the verge of triggering Sahm's recession rule - to validate its market friendly preconception.

Which is also why, while the headline rate of payrolls is seen picking up modestly in November (especially from a downward revised October print), analysts have cautioned against interpreting it as a sign of labor market resurgence. Indeed, as Newsquawk notes, labor market proxies released in the month allude to a slowing of labor market conditions: the weekly initial jobless claims and continuing data for the survey week that coincides with the BLS jobs data ticked up; the ADP's gauge of payrolls, while a poor predictor of the official NFP data, missed expectations; business surveys have also noted that slowdown in hiring. Additionally, the JOLTS data series for October saw a large decline, confirming that the labor market is coming into what Fed officials call "better balance"; officials do not seem concerned about the slowdown, and have suggested that labor market conditions are still very strong. Meanwhile, average hourly earnings are seen rising in the month, but the annual rate is expected to fall slightly. Officials have indicated that they would like to see slower growth and further softening in labor market conditions to help bring inflation back to target.