Fed Gets Key Rate Cut Update After Dramatic Jobs Slowdown
The latest data increases the odds that the Fed will make a major announcement at its next meeting.
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The start to Wednesday's economic calendar activity has begun, and ADP (ADP) found the domestic private sector lost 32,000 jobs during November, well below the 10,000 jobs the market expected.
While October’s jobs figure from ADP was revised higher to 47,000 from the initial 42,000, when we look at ADP’s data over the last year on a three-month moving average, there is little question when it comes to the dramatic slowdown in private sector job creation.
What’s important about this is that ADP’s findings are one of the last major data points we’ll get before the Fed’s policy meeting next week. It also builds on the deeper move lower found in ISM’s November Manufacturing Employment sub-index and suggests we’re likely to see the same in ISM’s November Service PMI data later on Wednesday morning.
As we think about the slowdown captured in that three-month moving data presented above, barring any wildly different findings in the November ISM data, it’s likely to cement expectations for a 25 basis point rate cut next week. It also has the potential for the Fed to pencil in additional rate cuts in 2026 compared to what it telegraphed in September when it presents its updated set of economic projections next week.
We’ve discussed how a lower interest rate environment would reduce enterprise project hurdle rates, a positive for non-residential construction and other capital spending projects. When it comes to the housing market, the knee-jerk reaction is that lower rates will benefit it as well. But let’s remember job creation is a primary driver of housing demand while interest rates influence affordability. Rather than be head-faked, for now we’ll keep shares of Home Depot (HD) and Builders FirstSource (BLDR) in the Bullpen.
