There was a lot of important information on the U.S. economy released this week but the biggest data point is without a doubt the latest monthly job report from the Bureau of Labor Statistics (BLS) out this morning. Indeed, total nonfarm employment in America rose by 178K payrolls in November, slightly above the +170K gain economists had expected. There were large revisions to the October and September figures, which altogether resulted in a 3-month (less-volatile) average payrolls gain of +176K. That is one of the weaker readings of the past few years but still an overall healthy pace of job creation that remains well above many Federal Reserve (Fed) officials’ estimates for what is needed to keep up with U.S. population growth. In fact, this average is historically quite high and should therefore continue to drift lower over time as the economy nears full employment. Annual payrolls growth has also started to slow but there are still more than 2 million jobs being added to the economy on a yearly basis. Regardless, November’s headline gain was the 74th consecutive month of net job creation in this country, the longest such streak in U.S. history.
As for joblessness in November, the official unemployment rate (U-3) plunged to 4.6 percent, the lowest reading since August 2007, and the underemployment rate (U-6) fell to 9.3 percent, the best print since April 2008. Education clearly provides the best path to greater employment prospects, because the jobless rate for Americans with a bachelor’s degree or higher was just 2.3 percent last month, compared to 7.9 percent for individuals with less than a high school diploma. It is worth noting, though, that the decline in the headline unemployment rate was helped by the labor force participation rate, which fell for the second month in a row to 62.7 percent. That is the lowest reading since June and due to a sudden uptick in the number of Americans who are no longer in the labor force. To put this another way, joblessness fell in November because more unemployed Americans found jobs last month but even more so because more people stopped looking for work. Further, U-6 is still somewhat elevated compared to pre-recession levels and implies that millions of Americans who would prefer full-time employment remain stuck with part-time work. On the bright side, 24.6 percent of unemployed individuals found a job during the last twelve months, and 1.1 percent of employed workers became unemployed. Both of those figures are the best readings of the current economic cycle.
As for wage growth, average hourly earnings unexpectedly fell by 0.1 percent in November, the first monthly decline this year. However, wage data can be volatile month to month, and this small drop might have just been a bit of giveback following the outsized October gain that was probably too good to be true. Moreover, wages have grown by 2.5 percent on a year-over-year basis, not great but still near the high-end of the recovery range. There also remain signs that upward pressure on wages should continue to build. For example, the net percentages of U.S. small business owners surveyed by the National Federation of Independent Business (NFIB) complaining about labor quality and planning to raise wages are near the highest levels of the recovery. Despite these signs of a tightening labor environment, the bond market appears to like the slight decline in wages that occurred in November because it signals that the economy can still add nearly 200K payrolls each month without stoking inflation. The yield on the 10-year U.S. Treasury note even dropped sharply after that earnings number was released but this job report overall is still strong enough to easily justify a rate hike at the Federal Open Market Committee (FOMC) meeting later this month.
Sources: Econoday, Twitter, Bloomberg, ZH, 538, U.S. DoL, NFIB, FRBSL, et alPost author: Charles Couch