The Jobs Report Just Changed the Outlook for Interest Rates

[00:00:00] Speaker 1: In today's video, let's cover the jobs reports that was released this Friday morning, and happy Friday. So the government is reporting that the labor market is extremely strong. The expectation was that the labor market would add a net 59,000 jobs in October, and the government says, according to the jobs report, that the labor market added 165,000 jobs. And on top of that, the unemployment rate has fallen to 4.1%. Now to give you some context, I'm showing you the charts of the jobs added or lost each month for the past four years. And for the record, I just want to say that I have a healthy dose of, you could say, skepticism when it comes to these figures. But these official figures, they affect other important things. So we still need to analyze data, analyze a jobs report. So just try to have fun with it. Try not to get triggered by the distorted data. All right. Okay. So here's how the labor market did by sector. Professional business businesses added the most jobs in October, a net 70,000 jobs. Healthcare and social assistance added 55,100 jobs. And it was wholesale trade and hospitality and leisure that saw the most job losses. So wholesale trade that you could think of that as basically the middleman. It's the middleman between the manufacturers and the retailers. I'll give you some examples like food distributors, automotive parts wholesalers, medical supplies. So basically, we're talking about the middleman. Now leisure and hospitality that consists of restaurants, bars, hotels, amusement parks, casinos, movie theaters, bowling alleys, etc. But I just want you to notice that this is the sector, leisure and hospitality that suffered the worst job losses. Now, could that be a sign that U.S. consumers are being forced to cut back on discretionary spending? Like, I don't know, you tell me. Now, I want you to take a look at this. This is wage growth. How fast the average American's income is rising. In October, the average wage increase was 3.1% annually. So that was the rates. Now, to give you some context, the most recent CPI inflation report says that inflation is running at a rate of 3.7%. So in other words, the average American is taking a pay cut. So if your income is increasing at a rate of 3.1% and your expenses are increasing at a rate of 3.7%, then obviously, that's not good. Additionally, the government says that the rate of inflation is at 3.7%, when in reality, I would say it's closer to 6.5% if you look at the money supply. Now, I want to show you this. The unemployment rates has fallen from 4.2% in September to 4.1% in October. And just as a reminder, this data point, the unemployment rates, is the single most important piece of information for the Federal Reserve when they're assessing the labor markets. So last month, the Federal Reserve said that the labor market is good, that it was solid. And what's happening right now, you take a look at this month, as the unemployment rate falls, they're just going to double down on their sentiments. So here's the situation. If the jobs report came in weak or bad this morning, then the Federal Reserve would be like, well, the labor market is struggling, then we can't raise rates or we shouldn't raise rates in December because that would hurt the labor market and the labor market is already struggling. But the thing is that today's report came in fantastic. It came in strong. So the mentality is going to be, well, if we raise interest rates in December, that's going to hurt the labor markets. However, the labor market's strong, so it can afford to take some damage. So before today's jobs reports, there was a 66.4% chance that the Federal Reserve would raise interest rates at their next meeting on December 9th. Now, after the jobs reports, because it came in so strong, the odds that the Federal Reserve will raise interest rates in December has now increased from 66.4% to now 79.1%. And there's a 20.9% chance that the Federal Reserve keeps interest rates the same. And this is all according to the CME FedWatch tool. Again, the next Federal Reserve meeting is going to take place on December 9th, which is not too far away. So I want to take you a little bit further out. Let's go to April of 2027, so that you can see the market expectations. This is where interest rates are right now at 4.0%. After the December meeting, the expectation is that interest rates are going to be here at 4.25%. But by April of 2027, there's about a 47% chance that the Federal Reserve will raise interest rates even higher higher than 4.25%. So I just want you to know that if these jobs reports, like if they keep coming in strong, then that's going to be a green light for the Federal Reserve to continue raising interest rates. And the way it's going, like it's not that far fetched based on the odds. It's almost, well, basically 50-50 that they're going to keep on going. Okay. Now I'm actually very excited to show you this data because there have been some major changes. So I need to take a look at this. Normally it's been tech that's been cutting the most jobs. But this month, for October, it was actually the food sector with 9,677 job cuts. So that was actually the leading sector of job losses or job cuts. And tech came in second place with 5,576 cuts in October. Now I want you to take a look at this. Why are companies cutting jobs? Like what's the primary reason? So market and economic conditions have now overtaken AI as the leading reason for job cuts in 2026. So it's not just for October, but for all of 2026. So what's going on here? Like perhaps the economy is not as strong as the government is reporting. You know, there's something to think about. In October, market and economic conditions was responsible for 37% of all job cuts. All right. I think that summarizes the labor market situation. Like you get the picture. Anyways, today's Friday. Happy Friday. Like, thank goodness. What a week, right? So I'm going to have a great weekend. Hope you do too. Thank you so much. And I wish you a very nice day. Take care.