Economic Update

Steve Scranton

Summary

The Bureau of Labor Statistics (BLS) released employment data for November and the results continue to stun and surprise economists, analysts, and forecasters. The BLS reported a 263,000 increase in jobs in November. This was stronger than the median forecast of economists surveyed by Bloomberg. The median forecast was for a 200,000 increase. The BLS also revised the past two month’s data with the net revision resulting in a 23,000 decrease from the original data as October data was revised up but, September data was revised down.

Top Four Industries for Jobs Growth

There were 10 industry sectors that had jobs growth. Leisure & Hospitality led the way with an increase of 88,000 jobs. One of the industries that has been a stalwart for jobs growth showed a dramatic slowing in November. Professional & Business Services only added 6,000 jobs in November. The increase in Government jobs was primarily at the State & Local level. The State & Local Government sector added 32,000 jobs.

Bottom Five Industry Sectors For Jobs Growth

Four industry sectors lost jobs with the Retail Trade sector leading the way. Retail is historically one of the first industry sectors to feel the impact if consumers start slowing their discretionary purchases. That trickles through to the Wholesale Trade and Transportation & Warehousing industries.

From an income perspective, the data will probably continue to worry the Federal Reserve. Average hourly earnings rose 0.6% after rising 0.5% in October. The Federal Reserve wants to see wage growth slow. Year-over-year average hourly earnings slowed from a 5.6% rate to 5.1%. This is still too high from the Federal Reserve’s perspective. The decline in the labor force (see below) may help explain why wage growth remains at elevated levels as employers compete for labor. For the average worker, their take home pay did not rise as much as the average hourly earnings increase due to reductions in hours worked and overtime. Average weekly hours worked fell from 34.5 hours to 34.4 hours. Overtime fell from 3.2 hours to 3.1 hours. The net result is a year-over-year increase in average weekly earnings of 3.9%.

Household Survey

The Household Survey once again showed a divergence in the number of new people employed. The number of people employed fell 138,000. As a reminder, just because a business creates a new job does not mean a new person was employed. If someone who is already working takes another job and fills the new job created, then no new people were employed. The number of people who are working multiple jobs grew by 435,000. This may help explain why there could be losses in employment while gains in jobs.

Even though there were job losses, the unemployment rate remained unchanged. This is because 186,000 people dropped out of the labor force and stopped looking for work.

For those who were already unemployed the picture deteriorated. The average duration of someone being unemployed grew from 20.8 weeks to 21.4 weeks. The percentage of people who have been unemployed for 27 weeks or more grew from 19.5% to 20.6%. 27 weeks is when unemployment benefits run out.

Conclusions

• The employment report continues to confuse and confound economists, analysts, and forecasters.
• The employment report continues to show strength in the jobs market.
• The continued strength in the jobs market and high annual increases in salaries cannot give the Federal Reserve comfort.
• The employment report supports comments from Federal Reserve officials that, although the size of interest rate increase may be reduced, the Federal Reserve is not done raising interest rates.