November Payrolls: Cancel the Labor Market Slowdown
The November jobs report was strong all around, laying to rest recent concerns that the labor market was about to succumb to the manufacturing recession. Instead, it suggests that the surprisingly strong October jobs report was no fluke and that it’s still too early to say the U.S. economy is at “full employment.” While the U.S. economy is not out of the woods yet, for the foreseeable future, the balance of power in the labor market will tend to remain with workers.
- Payrolls rose 226k, and with 41k in combined upward revisions to prior months, the 3-month average rose to 205k (from a previously reported 176k).
- Unemployment back down to 3.5%, returning to a 50-year low.
- Wage growth back up to 3.1%, but down slightly from October’s revised 3.2% (originally reported as 3.0%).
- Job gains were broad as well as deep: The overall diffusion index swung from 52.7 to 61.6. Growth in private services alone averaged 190k over the last 3 months – more than enough to keep the unemployment rate declining.
- Even retail trade eked out a small gain in payrolls – a measly 2k, but only the 4th month of gains this year. The holidays seem to play a significant role, with gains driven by department and general merchandise stores, as well as motor vehicle and parts dealers. Looking at the net numbers before seasonal adjustments, over October + November, payroll growth in retail was up 2% over 2018, suggesting a healthy round of holiday hiring.
- Transportation & warehousing (T&W) had a strong month as well, as the line between that industry and retail continues to blur. With a gain of 15.5k, T&W had its strongest month since June, and the gains were overwhelmingly in the retail-related categories of warehousing/storage and couriers/messengers.
- Manufacturing hired back striking auto-workers and then some, swinging from -43k to +54k. Similarly, the manufacturing diffusion index swung from 36.2 to 54.6.
- Weekly hours held steady at 34.4. Don’t forget that a dip in this measure was one reason for the “labor market slowdown” scare. That’s all in the rearview mirror now.
- Recession nowhere in sight: The Sahm Rule recession indicator stands at -0.1 (versus a value of 0.5 suggests we are likely to already be in a recession). This indicator simply compares the unemployment rate’s current 3-month average with the minimum of that average over the prior 12 months.
- Revisiting the full employment debate? In some ways this is a moot point right now with the Fed already on hold, inflation subdued, and persistent downside risks to growth, but there were a number of reasons to wonder how much longer the labor market can run this hot.
- With a 3-month average of 205k, job growth is well above all conventional estimates of both population growth and labor force growth, even with unemployment at a multi-decade low.
- Slack is still declining: Long-term unemployment declined 40k and involuntary part-time work declined 116k, driving the U-6 “under-employment” rate back down to 6.9% from 7.0%.
- The employment-to-population ratio for prime-age workers nearly back to pre-2008 levels, although it’s still below its highs from the year 2000.
- Wage growth actually slowed to 3.1% from an upwardly revised 3.2% (previously reported as 3.0%), and there appears to be a growing divergence between wage growth for managers vs. non-managers. That’s a good sign for lower-income groups, but it raises new questions about where exactly the labor market stands.
- More runway for the labor market: The November jobs report raises the possibility that there’s more upside for the U.S. economy as a whole. The Fed’s rate cuts are still taking hold, and the labor market has more momentum than we realized, but this report does not suggest a fundamental shift in the U.S. economy. The risks from trade policy and election-related headlines to stock prices, business confidence, and consumer confidence remain real. Corporate balance sheets could amplify any quaking. Absent a loss of confidence, though, the 2020 outlook looks relatively benign.
- Still, this report cements the Fed in “wait and see” mode. The U.S. economy – with a little monetary policy support – is proving resilient, despite the manufacturing recession. More and more, the dynamic resembles the 2015-2016 cycle. Rate hikes are out of the question right now, but it’s hard to make a case for further cuts. We have a number of months to see how trade negotiations go and how prior rate cuts filter through the economy.
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