Orlando's Outlook: 'Fairway' report on December jobs


Bottom line With the post-hurricane distortions now largely behind us for the first time, the Department of Labor this morning issued a jobs report for November that was right smack in the middle of the fairway. Better-than-expected nonfarm payroll gains of 228,000 jobs were fueled by solid hiring trends in manufacturing, construction, retail, temporary help and education & health care. Hours worked rose for the first time in five months, a resumption of wage gains and household employment hiring last month reversed October’s month-over-month (m/m) declines and the unemployment rate (U-3) stayed at a 17-year low.

In addition, we saw nothing in this morning’s report that could dissuade the Federal Reserve from hiking interest rates by another quarter point at next week’s policy-setting meeting, and we expect that stocks could enjoy a Santa Claus rally and continue to grind higher to new records into year-end.

We wish everyone a Happy Chanukah! The 8-day festival of lights begins at sundown on Tuesday, Dec. 12.

Solid nonfarm payrolls in November, adding a better-than-expected 228,000 jobs, which was well above the Bloomberg consensus gain of 195,000 jobs and our own 193,000 estimated gain here at Federated. The Bureau of Labor Statistics (BLS) revised September and October higher by a combined 3,000 jobs. October’s preliminary gain of 261,000 jobs was revised down this morning to a gain of 244,000. September’s preliminary loss of 33,000 jobs, which was revised up last month to a modest gain of 18,000 jobs, was revised up again this morning to a final gain of 38,000 jobs. That compares with August’s final gain of 208,000. So the average over the past four months of roughly 180,000 gets us back to trend-line.

Private payrolls also solid, adding a better-than-expected 221,000 jobs in November, above the Bloomberg consensus gain of 195,000. The BLS revised September and October up by a combined 30,000 job. October’s preliminary gain of 252,000 jobs was revised modestly lower to a gain of 247,000 this morning. September’s preliminary loss of 40,000 jobs, which was revised last month up to a modest gain of 15,000 jobs, was revised up again this morning to a final gain of 50,000 jobs. That compares with August’s final gain of 184,000 jobs. So the trend-line average over the past four months is roughly 176,000 jobs.

Government hiring rebounded back into the black in November, as the difference between private and nonfarm payrolls collectively added 7,000 federal, state and local government jobs. That compares with a loss of 3,000 jobs in October (originally reported as a gain of 9,000 jobs), a final loss of 12,000 jobs in September (originally reported as a gain of 3,000 jobs) and gains of 24,000 jobs in August, 5,000 in July and 3,000 in June. In November, the feds lost 3,000 jobs, but state and local governments added 1,000 and 9,000 jobs, respectively.

Household jobs recover, as the admittedly volatile household survey added a modest 57,000 jobs in November, after losing 484,000 jobs in October. Previously, the household survey had added a massive 906,000 jobs in September, lost 74,000 jobs in August, but added 345,000 jobs in July and 245,000 in June. The household survey is a leading indicator for nonfarm and private payrolls, so November’s sequential improvement is comforting. It also serves as the basis for the unemployment rate.

Unemployment and participation rates unchanged, labor-impairment rate rises, as the unemployment rate was unchanged at 4.1% in November, its lowest level since a 3.9% rate in December 2000. The labor-impairment rate (U-6)—also known as the “total” rate of unemployment (or the underemployment rate) because it more broadly includes discouraged workers and the underemployed—rose a tick to 8% in November due to a surge in people working part-time for economic reasons, which compares with 7.9% in October (its lowest level since December 2006). The U-6 had been as high as 8.6% in June, July and August. Finally, the labor-force participation rate (the share of working-age people in the labor force) was unchanged in November at 62.7%. That’s down from a 3-year high of 63.1% in September, and its 38-year cycle low of 62.4% was in October 2014.

Hours worked and wages both improve, as the average private work week for all employees ticked up to 34.5 hours worked in November, after this metric was stuck for four consecutive months at 34.4 hours. While that’s down from 34.5 hours in June, it’s still better than the 3-year low of 34.3 hours set in both March and February. An increase of 0.1 hour worked is the equivalent of adding an estimated 350,000 or more jobs to the economy. Hourly wages rose by 0.2% on a m/m basis in November, compared with a downwardly revised 0.1% m/m decline in October. On a year-over-year (y/y) basis, wage growth rose 2.5% in November, up from 2.3% in October.

Construction and manufacturing both strong, with Construction hiring leaping by 24,000 jobs in November, compared with 10,000 new jobs in October, 13,000 in September, and 24,000 in August. Construction should remain strong in coming months, as the rebuilding from the hurricanes continues. Manufacturing surged by a much stronger-than-expected 31,000 jobs in November, compared with a gain of 23,000 jobs in October, up sharply from a modest gain of only 9,000 jobs in September, but still below a powerful gain of 44,000 jobs in August (a new 19-year high). We expect this uptrend to continue, as the ISM manufacturing index hit a new 13-year high at 60.8 in September. We’re moderately below that now at 58.2 in November.

Retail positive for the second time in three months, gaining 19,000 jobs in November, after losing an upwardly revised 2,000 jobs in October (originally reported as a bigger loss of 8,000), and an upwardly revised gain of 12,000 jobs in September (originally reported as a more modest gain of 7,000). Prior to this, retail had lost jobs for seven consecutive months,, shedding 2,000 jobs in August, 11,000 in July, 4,000 in June, 10,000 in May, 4,000 in April, 40,000 in March and 29,000 jobs in February. So the strong Back-to-School season and expectations for a good Christmas have begun to result in better retail hiring trends.

Temp hiring positive for 11 consecutive months, with 18,000 new jobs in each of November and October, 10,000 in September, 9,000 in August, 13,000 in July, 11,000 in June, 15,000 in May, 2,000 in April, 13,000 in March, 10,000 in February and 15,000 in January. Temps are an important leading indicator of employment growth, so this consistency is encouraging for another good month in December and another good year in 2018.

Leisure softens, as this economically sensitive category continued to see a tremendous amount of hurricane-related volatility to over the past few months, due to a very heavy concentration of jobs in Florida. The category added only 14,000 jobs in November, representing significant consolidation from the addition of 104,000 new jobs in October, after losing 75,000 jobs in September and 9,000 jobs in August. By comparison, this sector added 50,000 jobs in July, 38,000 in June, 33,000 in May and 60,000 in April.

Education & health accelerated in November, adding 54,000 new jobs, after adding a downwardly revised 24,000 jobs in October (originally reported as a gain of 41,000 new jobs). By comparison, the economy added 23,000 workers in September, 46,000 in August, 51,000 in July, 40,000 in June, 37,000 in May, 45,000 in April, 16,000 in March, and a strong 66,000 in February. The rebound back to trend-line that we had expected to see here after muted gains in September and October is beginning to happen.

Manufacturing jobs jump in ADP data, as the ADP National Employment Report, a forward-looking proxy for private payroll growth, added an in-line 190,000 jobs in November, versus October’s gain of 235,000 workers, a 7-month high. Small firms with fewer than 50 employees added 50,000 jobs in November (26% of total, compared with October’s downwardly revised addition of 67,000 jobs, or 28%); midsized companies with 50 to 499 employees added 99,000 jobs (52%, compared with October’s upwardly revised 74,000, or 31% of total); and larger companies with more than 500 employees hired 41,000 (22%, compared with October’s upwardly revised 94,000, or 40%). Manufacturing added 40,000 jobs in November, the most in more than a decade.

Jobless claims still low, as initial weekly unemployment claims (a leading economic and employment indicator) for the survey week that ended Nov. 18 rose 240,000, while the most recent week that ended December 2 had claims settling back at 236,000. That’s just off Oct. 14’s 44-year low of only 223,000, pointing to continued strength in domestic employment.

No change in JOLTS, as the Job Openings and Labor Turnover Survey (JOLTS) measures labor-market dynamics such as resignations, help-wanted ads and the pace of hiring (with a one-month lag) to provide some context to general employment trends. In the most recent data available, job openings in September increased marginally to 6.093 million m/m from August’s upwardly revised 6.09 million. Combined with the little-changed figures of 5.3 million hires versus 5.2 million separations, a hires rate of 3.6% (from August’s 3.7%) versus a quits rate of 2.2% (from August’s 2.1%) and a layoffs/discharges rate unchanged at 1.2%, we get the same story that companies are having little success finding new workers with the needed qualifications to fill their open positions.

Challenger job cuts rise, according to yesterday’s report by Challenger, Gray & Christmas said that companies are planning for 35,038 layoffs in November, a jump of 17% from October’s 29,831 and a 30% y/y increase. The health-care sector shed the most jobs, as was the case in October. While the monthly increase was sizable, the report remains low enough on a long-term basis to show that employers continue to hold onto employees. 

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