Yesterday, prediction markets were putting the chances of a December hike around 65%. After today’s jobs report, those odds shot to roughly 80%.
The reason is pretty simple: the labor market just came roaring back.
Payrolls increased by 165,000, crushing expectations around 60,000 to 65,000. But that headline number is only part of what caught my attention. Job openings are strong, fewer workers are getting laid off and more employees are confident enough to quit for something better.
Taken together, those numbers tell the Fed something it has been waiting months to hear: the job market may finally be strong enough to withstand higher rates.
In today’s Moneyball Economics, I’ll show you why this wasn’t just one freakishly good payroll report, where the hiring strength is coming from and why investors should start preparing now for the possibility of another rate hike in December.
Let’s get started:
Video Transcript:
Hello fellow Moneyball economists, I’m Andrew Zatlin. Welcome to Moneyball Economics.
In fact, welcome to the likelihood that we are going to see another Fed interest rate hike in December. Go on Kalshi for example, and you’ll notice that the odds of that rate hike jumped today.
So yesterday on Kalshi, the odds of a rate hike in December were hovering around to 65%. Today, they jumped to 80%. What changed between yesterday and today? Well, we got super strong payroll numbers. I’m going to touch on them in a minute, but it’s not just the payroll numbers.
See, all week long, we’ve been getting indications that the labor market has become very robust. That matters because if you’re the Fed, you have been trying to wrestle with when and if you should raise interest rates in the face of this really high inflation. One thing that you’ve been holding back on is because the labor market hasn’t looked very strong and you have a dual mandate to protect jobs and to deal with inflation.
Well, guess what?
As of this week, all signals are flowing that the labor market’s strong and can handle a rate hike. So basically it’s green lights for a rate hike. Probably not going to happen in November, but December’s a very strong candidate.
What’s this data I’m talking about that came out that said the labor market’s strong? Well, in addition to the payroll data, there were pretty much three other types of reports that came out. One at the beginning of the week is focused on what hiring intent is like at companies and what the current state of affairs is for them.
It’s called the JOLTS report. JOLT stands for job openings, layoffs and so forth. And if you want to talk about demand for workers today and in the future, you would look at job openings.
Are companies looking to bring on more people? Whether or not they’ve been successful, whether or not they’ve hired them or not, are they trying to bring in more people?
And guess what? The job openings number was super strong, but that’s not where it stopped.
There are a couple of other data points and ones that I like to look at, which to me indicate whether or not the labor market really is tight. See, I like to look at whether or not, well, it’s called “take this job and shove it” factor, whether employees feel like there is a lot of job opportunity out there and they’re willing to walk away from the company. It’s called quits and the quits number surged as well. That indicates basically there are jobs out there and people are willing to walk. And the counterpart for that, the flip side is are companies trying to retain workers even more?
So you can look at the layoffs that are going on. Guess what? Layoffs fell. So the combination of a lot more people are walking away from their job, finding other jobs, and a lot more companies are trying to retain their people indicates that we’re in a strong, tight labor market.
And added to that, we’ve got these job openings that indicate, and it’s got a lot of legs. In fact, when we talk about layoffs, that brings us to the second of the data points that came out. Thursday, jobless claims came out and they fell. They actually fell down to 189,000, fewer people getting laid off, more retention of workers.
Well, the flip side of retention of workers and fewer layoffs, what’s going on with hiring? Yeah, the JOLTS data indicates the hiring intent. Well, we also got something from the Institute of Supply Management. This is a company that does a lot of surveys around producers like manufacturers and in the service industry, and there has been nothing but expansion going on. When you’ve got a lot of economic activity going on, when you’ve got new orders piling in, you got to meet those orders. And so you start hiring.
And that’s also what that survey released.
It said, “We are hiring more and we’ve got to continue to hire more.” Added up, the conditions for today’s payrolls were fewer layoffs, more hiring. And that’s exactly what we saw in the data. We got a number of 165,000. Now to put that in perspective, last month was raised from 29,000 to 60,000. Off on the side, I had forecasted last month 71,000.
So it’s a good feeling when they revise and hit the number that I expected. This week, 165,000, nobody was close. In fact, there were only 10 of us, and yes, I’m included, 10 of us who were at 95,000 or above. The highest was 125,000. So there was a handful of people at the top thinking it was going to be about a hundred plus. It hit 165,000. That’s a huge beat.
And guess what? Consensus though it was going to be about 60, 65,000.
So this was a massive, massive beat. And when you look at the numbers, you see, sometimes when you get a beat like this, it can be because the model or there’s some kind of weird distortion. There was no weird distortion. This was strength where it mattered. Basically, everyone’s hiring a little bit more, but there were definitely some interesting canaries in the coal mine.
For example, as you know, Donald Trump has been trying to use his industrial policy to bring manufacturing jobs on shore. Manufacturing is roaring. We are seeing a lot of steel jobs. We’re seeing a lot of computer manufacturing jobs.
Overall, we are seeing a lot of job growth in the manufacturing space, and that came out today. We’re also seeing a lot of gearing up for the holiday shopping season, a lot more couriers hired. We also had, in case you didn’t know, this is the rollout of AI in an agentic form.
So starting this holiday season, you’re going to see shoppers assisted with a very proactive AI voice. To make that happen, there had to be a lot of hiring, a lot of support needed to go in to make sure that these companies are ready for it. So sure enough, third party expertise, well, that spiked up as well. And then lastly, just in general, we’ve had warm weather and that’s led to construction jobs being solid, a lot more leisure, hospitality and retail. Look, overall, we had growth on growth on growth, and it was a lot more than I expected, quite frankly, 165 versus my 95.
And the growth was in places also like temp workers. When an economy is growing, you tend to bring in more part-time workers before you bring in the full-time workers, and that’s also what we saw. So a lot of broad-based, robust hiring took place.
The Jolts job openings data indicates that we can expect a lot more. And to cap it off, unemployment dipped from 4.2% to 4.1%. Let’s put this in perspective. There was a lot of hiring demand coming into this year.
And in fact, we had hiring coming out in January super strong. Then the Iran war hit, and let’s face it, that raised costs, that created uncertainty, and it made employers not interested in hiring a lot of people to manage their costs. At this point in time, eight months into this conflict, well, the costs have pretty much been resolved, the supply chain disruption’s been resolved, and now you have a return to business.
Going forward, I think the job market is finally going to have that traction that we’ve been wanting to see, and it’s going to be making up for a lot of lost ground. Don’t know where that’s going to take us with interest rates, but at least for December, plan accordingly.
A higher interest rate has some consequences out there for both bond and stock market investors.
Suffice it to say though, we’re in it to win it.
Zatlin out.
