Employment data released this week showing underlying weakness in America’s jobs market may be the foundation for new interest rate cuts from the Fed early next year, according to UBS.
The release from the U.S. Bureau of Labor Statistics yesterday, delayed as a result of the government shutdown, showed nonfarm payroll employment added just 64,000 jobs in November, relatively unchanged from April. Meanwhile, the unemployment rate continued its steady climb higher in the latter part of this year, and now sits at 4.6%.
The data painted a strained picture as we round out the year. For example, the number of people employed part-time involuntarily was 5.5 million in November, an increase of 909,000 on the month prior. These individuals, the Bureau of Labor Statistics (BLS) explained, would have preferred full-time employment but are working part-time because their hours were reduced or they were unable to find full-time jobs.
Elsewhere, the unemployment rate among teenagers was up month on month to 16.3%, while the number of people jobless for less than five weeks was 2.5 million in November, up by 316,000 from September. This suggests that labor market entrants and those bouncing from job to job are having a tough time landing more sustainable roles.
Likewise, although a full employment release wasn’t shared for October, this week’s data included the fact that Federal government employment declined by 162,000 in October.
As such, the data “raised several red flags,” said UBS chief economist Paul Donovan in a note to clients this morning. He added that the quality of the data itself must be taken with a pinch of salt, because the government shutdown compounded the issue of lower response rates to BLS surveys.
But “the report does not raise too many concerns about the resilience of the U.S. consumer,” he added. “Employment in restaurants continues to grow, suggesting the trend to spending on having fun continues.
“However, there are probably enough concerns about the health of the labor market to justify an insurance rate cut by the Federal Reserve next year.”
Currently, investors aren’t expecting that cut to come anytime soon. The next meeting at the end of January is unlikely to yield a further reduction to the base rate, according to CME’s FedWatch barometer. At the time of writing, the odds of a 25 basis point cut sit at 22%, though past meetings have seen odds shift dramatically as the meeting approaches.
The October figure was especially “jarring,” chimed Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management. In a note shared with Fortune, Ausenbaugh echoed Donovan: “This report bolsters the way we have been thinking about the Fed’s current policy approach. The delivery of ‘insurance’ cuts over the past few months was prudent and brought rates to a more neutral level.
“One additional cut may be appropriate in the first quarter of 2026, but the economy looks stable enough to heed patience in taking additional action.”
Cautious optimism
Despite the data providing a jump scare or two, Macquarie’s head of economics, David Doyle, sees some green shoots.
“While data are mixed, overall they support the notion of a likely bottom in hiring in the summer months with potential improvement lying ahead in 2026,” he wrote in a note to clients. Government employment was a drag on the figures overall, he argued, meaning that this should reverse itself in December data after the shutdown had ended.
Not everyone is so optimistic. ADP chief economist Nela Richardson told Fortune in an exclusive interview that she was not yet seeing a “rosy picture” in private payroll data. Per ADP’s most recent results, U.S. private employment dropped by 32,000 roles in November, led by weakness from smaller businesses. Companies with between one and 19 employees axed 46,000 roles, while those with 20 to 49 employees cut 74,000. Conversely, companies with 500-plus staff added 39,000 employees.
She explained: “Tiny firms are a big chunk of employment, but the tiny firms are making tiny moves, and they’re moving all in the same direction. It could be as small as not hiring two teenagers at the bakery or forgoing that delivery driver over a certain season. It doesn’t mean it’s a big, huge layoff—it’s not replacing a worker here or there, and those changes add up.”
