Interesting divergence appeared in the US economic data released last Tuesday. In November, seasonally adjusted non-farm payrolls increased by 64,000, surpassing market expectations of 50,000, indicating that the labor market still looks quite resilient. However, a closer look at other indicators is less optimistic.

The unemployment rate soared to 4.6%, the highest since September 2021, well above the expected 4.4%. Wage growth is also slowing down—average hourly wages rose only 3.5% year-over-year, below the expected 3.6%, and the monthly increase was just 0.1%, far below the anticipated 0.3%.

More notably, the revised data for October shows non-farm employment decreased by 105,000 month-over-month, the largest single-month decline since the end of 2020, whereas market expectations had only forecasted a 25,000 drop. The significant gap is clearly due to over 150,000 federal employees accepting deferred buyouts and leaving the government payroll mostly by the end of September. This reflects the new administration’s concrete actions to reduce the size of the federal government.

Consumer performance was also weak. US retail sales in October showed zero growth month-over-month, compared to the expected slight increase of 0.1%, and the previous month's figure was revised down to 0.1%. Weak auto sales were the main drag.

Market reactions to these data were quite sensitive. Following the release, the probability of a rate cut in January next year in US federal funds futures surged from 22% to 31%. However, interest rate futures still suggest only two rate cuts by 2026, and overall, the market’s expectation for easing next year is about 58 basis points.