Today’s Headlines: An Outstanding Jobs Report

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Today’s Headlines: An Outstanding Jobs Report
December 9, 2017
Tremendous Job Growth in November

The November job report from the Bureau of Labor Statistics (BLS) provided an early Christmas present of 321,000 new jobs, blowing past the estimates of 225,000-230,000. Upward revisions to September and October added 44,000 more jobs, putting the year’s job creation total at 2.65 million.

Barring a downward revision that would wipe out all December gains and then some, President Obama can crow that more jobs were created in 2014 than in any year since 1999 – as well as claiming the greatest monthly job growth since January 2012.

This report is especially striking considering the lackluster performance of other leading economies — including those in Europe, China and Japan. The United States is clearly outpacing all its major trading partners today.

More Good News

Job growth was surprisingly broad. Retailers added 50,000 jobs in a partially seasonal move, but professional services increased by 86,000 jobs and significant gains were noted in health care (29,000), manufacturing (28,000), financial activities (20,000), and construction (20,000+).

Mesirow Financial Chief Economist Diane Swonk notes that the quality of jobs are improving, but adds that retailers may be adding more part-time workers to avoid the January requirement of health insurance coverage for those working over 30 hours per week.

Wage growth, which has been anemic, also showed signs of life, with a 0.4% gain in average hourly earnings to $24.66 per hour. For the year, the average earnings increase is comparable to inflation at 2.1% – but if the monthly 0.4% growth can be sustained, we may finally be heading out of wage stagnation.

A Few Concerns

Unemployment remained at 5.8%, and the more comprehensive U-6 unemployment rate only dropped slightly, from 11.5% to 11.4%. The U-6 rate, which includes involuntary part-time, marginally attached and discouraged workers, is showing continued slow progress from the peak of 17.1% in parts of 2007-2008 – but at this rate, it will be mid-2015 before the statistic drops into the 8-10% range of the pre-recession era.

The labor participation rate is still at 62.8%, as it has been for the most part since April. Even so, progress has been made in the important categories of those unemployed 27 weeks or longer (down 101,000), and part-time workers who are part time for economic reasons (down 177,000) or for business conditions (down 150,000).

Meanwhile, there was an increase of 56,000 workers unemployed less than five weeks, and an extra 92,000 unemployed between 5 and 26 weeks. It will be interesting to see how the upcoming jobless claims report meshes with this trend. Analysts are generally expecting the monthly number of jobless claims to drop.

Watch for a December Revision

While the November jobs report is unquestionably good news, let’s not get carried away until we see what the next two months reveal. A downward revision is always possible – especially given that the seasonal adjustment this year was unusually low.

November 2013 raw employment numbers yielded 523,000 new jobs, which were seasonally adjusted down to 203,000. Compare that to this November, with 497,000 new jobs overall seasonally adjusted down to the reported figure of 321,000. There is no obvious reason why the adjustment is so different; thus, a downward revision would not be surprising.

The Takeaway
As with every recent jobs report, analysts are looking for any indication that the Federal Reserve will be spurred to raise interest rates earlier than their anticipated mid-2015 timeframe. We think it is too early to suggest that will happen. We need to see that greater wage growth is a trend and not an aberration. There is still an excess of long-term unemployed and underemployed workers to absorb before the classic supply and demand wage pressures kick in – although that does assume a decent match between worker skills and available jobs, which is arguable. Unless the Federal Reserve changes course and is prepared to accept a higher comprehensive U-6 unemployment rate as the new norm, expect them to stay on track with their mid-2015 plans on interest rate hikes. It should take 2-3 more months of similar reports, with an increased dent in long-term unemployment and escalating wage improvements – or a sharp rise in inflation, which is unlikely – to get the Fed to move more quickly. We expect no changes in interest rates, a continuing rise in stocks, a housing market that is still mixed due to slow wage growth, and increased volatility in equities as some investors try to time the interest rate changes and overreact. We further expect a good but not outstanding December jobs report. One wild card is how the continuing economic sluggishness in Europe and Asia will affect the US economy over the next two quarters. Just as a rising tide can lift all boats, so can this negative tide abroad help dim our near-term economic prospects. For now, however, we should enjoy this Christmas present of a robust jobs report, because it indicates things are heading in the right direction – and maybe gaining some momentum.
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