Private employers added 127,00 jobs in November: ADP

Yahoo Finance Live anchors discuss November ADP report data.

Video transcript

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BRIAN SOZZI: But we begin today with the top story, and that is Federal Reserve Chair Jerome Powell, set to speak later today as he navigates his high-stakes mission to bring down inflation. For what to expect here, let's bring in Yahoo Finance Fed correspondent Jen Schonberger. Jen?

JENNIFER SCHONBERGER: Good morning, Brian. Fed Chair Powell slated to speak this afternoon in what will be his last remarks before the Federal Reserve's policy meeting in two weeks, where officials are expected to slow down the pace of rate hikes to 50 basis points from a blistering rate of 75 basis points for the past four meetings. Now, Powell is expected to talk about the economic outlook and the health of the job market when he speaks at the Brookings Institution here in Washington.

Powell likely to repeat that the job market is very strong and probably too tight to bring down inflation. He will likely reiterate that the Fed will slow down the pace of rate hikes to account for the time it takes for higher rates to filter through the economy. But he will also likely say that the Fed will raise rates higher than projected in September and hold them at higher levels for longer, given how sticky inflation has continued to be and even with nascent signs of cooling.

Now the Fed will get a read on its favorite inflation gauge, the personal consumption expenditures index, Thursday, and another reading on the consumer price index in December, right before its meeting. And high inflation not just a US story but a global story. Inflation in the eurozone fell in November for the first time since the middle of last year, as energy prices dropped.

But economists warn that isn't likely to stop the European Central Bank from increasing interest rates further. Consumer prices still rose 10% in November, though, down from 10.6% in October. Guys.

BRAD SMITH: All right, thanks so much. Jen Schonberger breaking that down for us. Well, you've really teed up the conversation here. Let's talk a little bit more about the Fed because we've got a ton of Fed speak that's come over the past two weeks as well. We heard from Bullard yesterday as well, talking about how long we could be in this particular kind of era where the Fed is slowly raising interest rates. And particularly what he had pointed out was that we may have to stay here all during 2023 and even into 2024. That, of course, is catching some of the markets here off guard. But for Bullard, who has been a little bit more hawkish in his tone, it shouldn't be too much of a surprise here.

JULIE HYMAN: Yeah, and really the central question here is, where does inflation come from, right? What is the source of inflation? Is it demand driven? Is it supply driven? Is it both? And the San Francisco Federal Reserve actually just did a survey on this, a study of this, and the conclusion is it's really hard to tell at various times. You see the ambiguous inflation feed there. That is the orange line-- that it's difficult to tell which of these it came from. If it's demand-driven inflation, that's something the Fed can in theory affect, right?

If they raise interest rates, in theory, that suppresses demand and eventually brings down prices. If it's supply shocks, like we saw during the pandemic, that's a lot less something a lever that the Federal Reserve can push on. So kind of interesting here as we get to this point, and as we do look at some of the demand drivers coming down a little bit, how this is going to play out and how the Fed's going to read this.

BRIAN SOZZI: Yeah, for those, I think, logging on right now to our platform, checking their portfolios and various ticker pages, I will say this, it's hard to handicap what the market reaction could be here. And I just got a note from Jan Hatzius, the chief economist over at Goldman Sachs. And he notes this-- Powell's likely to hint that the FOMC will slow the pace of rate hikes at the December meeting but push back against the recent easing in financial conditions with two hawkish counterpoints. So it's tough. So on one hand, Powell may say, you know what, we might be slowing the rate hikes but maybe not as much as the market has expected the past-- the past month or so.

BRAD SMITH: And one of the other factors that also kind of goes into that inflation picture that we were looking at is how much people are getting paid too. We had seen that within the ADP report here, as the year-over-year pay, the median change in annual pay, that actually went up by about 7.6%.

So even if you do have the number of jobs that are being added, pulling back there in some very specific categories that we could break down in a hot second, but the pay, I think, staying elevated and continuing to move higher, if you do have a higher wage that employees are getting and then still being willing to spend to a certain extent as well, then that too is another inflationary factor that we have to consider.

JULIE HYMAN: Yeah, and we saw some big divergences sector-wise in this ADP report. Manufacturing jobs down 100,000 in this report. We saw a contraction in construction jobs of 2,000. And then when we talk about all of these layoffs that have been going on-- and by the way, a report today that DoorDash is laying off a little more than 1,200 of the employees in its corporate office. So where are all those tech employees, right? It looks like that they are spread between a couple of different areas.

There's an information category in ADP that saw a drop of 25,000. And then there's professional and business services. Like, if you're an executive, a sales exec at DoorDash, maybe you're in that category instead of in the information category. I don't know. But that saw a drop of 77,000. So we are seeing that-- the pullback that we've been talking about in tech hiring. That's where it looks like it's showing up.

BRIAN SOZZI: This one bothers me. I will say it quickly on DoorDash, because here's a company that has done well the past year, now following other tech companies that have not done well in laying people off. So it really makes me a little concerned of where we are in the economy but also very curious of what DoorDash is seeing in its business in the fourth quarter.

BRAD SMITH: Yeah, given the number of tech layoffs specifically that we have seen, keep a close eye on that professional and business services category. You think back to Meta and how many people they laid off-- 11,000. That certainly is going to be one of the kind of more-- the larger data points to continue to track, even as we get into the BLS statistics too.

JULIE HYMAN: Yeah, we did just see DoorDash shares trading higher, so it looks like people aren't too worried by this signal. But that's a good point that you make there.