Employment surges amid November noise
Bottom line November’s nonfarm labor report released this morning was much stronger than expected. It surged by 266,000 jobs, the most since January, compared with consensus expectations of 180,000 jobs and Federated’s more conservative forecast of 175,000. When combined with positive revisions for September and October of 41,000 jobs, employment leapt by 307,000 jobs last month, which boosts the labor market’s 3-month average to a 10-month high of 205,000 jobs.
This impressive performance came despite a very noisy November. To be sure, the 6-week General Motors strike affecting 48,000 United Auto Workers ended in late October, so we had expected that these returning workers would help to boost today’s manufacturing totals. They clearly did. But at the same time, recent weakness in the ADP report, the initial weekly unemployment claims’ survey week and the Openings and Labor Turnover Survey (JOLTS) report served to tamp down our enthusiasm. The labor-market report simply ignored these headwinds.
Aside from strong nonfarm and private payroll figures and the auto-related bounce in manufacturing, retail and transportation hiring has been solid the past few months. In addition, the unemployment rate (U-3) at 3.5% and the labor impairment rate (U-6) at 6.9% slipped to 50- and 19-year lows, respectively. Average hourly earnings rose to a revised 3.2% in October and 3.1% in November. On the negative side of the ledger, the household survey rose by a tepid 83,000 jobs, the labor force participation rate slipped a tick to 63.2% and hours worked were unchanged.
So as we look out to next week’s Federal Reserve policy-setting meeting, we’re expecting no change in the upper band of the fed funds rate at 1.75%, a trend we expect to continue through next year’s presidential election. We continue to see no risk of recession before the middle of calendar 2021 at the earliest. In conjunction with benign inflation, a healthy labor market, a strong consumer and a nascent rebound in manufacturing, we continue to believe that the S&P 500 will drive through our 2019 price target of 3,100 to our long-standing year-end 2020 target of 3,500.
Payrolls and revisions were strong November was much more robust than expected, with a gain of 266,000 jobs, compared with a consensus estimate of 180,000 and Federated’s more conservative forecast of 175,000. But October was revised up by 13,000 jobs to a gain of 156,000 and September was revised up by another 28,000 jobs to a final gain of 193,000. Government hiring in November rose by 12,000 jobs, led by local gains of 13,000 and a loss of 1,000 federal workers. Consequently, private payrolls rose by 254,000 jobs in November, well above consensus estimates of 178,000, with combined positive revisions of 48,000 jobs in September and October.
Pace of household hiring slows The admittedly volatile household survey (a leading employment indicator) added only 83,000 jobs in November, compared with 241,000 jobs in October, 391,000 jobs in September, 590,000 in August (its highest level since February 2018), 283,000 in July, 247,000 in June and 113,000 in May.
Manufacturing rebounds, construction positive The manufacturing sector enjoyed a much stronger-than-expected rebound of 54,000 jobs in November (consensus at 40,000), compared with a downwardly revised loss of 43,000 jobs (originally flashed as a loss of 36,000) in October, largely due to the striking GM workers returning. Manufacturing had posted modest gains of 2,000 workers in each of September and August. The construction industry added a paltry 1,000 jobs in November, as the weather was prematurely cold, snowy and icy across the country last month. That compares with an upwardly revised 14,000 jobs in October and 9,000 in September.
Unemployment, labor impairment & participation rates fall The unemployment rate (U-3) slipped a tick to 3.5% in November, matching a 50-year low, and the labor impairment rate (U-6) decreased a tick to 6.9% in November (matching a 19-year low), due to only 40,000 new entrants joining the civilian labor force. The labor force participation rate also declined to 63.2% in November from 63.3% in October, which was a new 6-year high.
Wages rise, hours worked flat Average hourly earnings rose 0.2% month-over-month (m/m) in November, down from an upwardly revised 0.4% gain in October, which matched a five-year high. The year-over-year gain in November was a stronger-than-expected 3.1%, down from an upwardly revised 3.2% increase in October and below February’s 10-year high at 3.4%. These robust wage gains should provide holiday shoppers with a boost. The average private work week for all employees was unchanged for the fourth consecutive month and for the fifth time in the past six months at 34.4 hours worked in November. A change of 0.1 hour worked theoretically adds or subtracts 350,000 jobs to or from the economy.
Retail and transportation improved With a solid 4% Back-to-School gain in 2019 and with expectations for a 4-4.5% increase for Christmas, retail hiring has improved recently. Retail added a modest 2,000 jobs in November for the third consecutive month, on the heels of 22,000 new jobs in October and 12,000 jobs in September. There were job losses in each of the prior seven months. In addition, major transportation companies (like UPS and FedEx) have already begun to orchestrate healthy holiday hiring plans, adding 14,000 workers in November, 36,000 in October and 25,000 in September.
Temps positive Temporary help (a leading economic indicator) added 5,000 workers in November, compared with an upwardly revised 4,000 workers in October (flashed as a loss of 8,000 jobs) and 10,000 jobs in each of September and August.
ADP, jobless claims & JOLTS all soft Despite the weakness in these three employment leading indicators, the November payroll report was quite robust. ADP’s private-sector hiring was a much weaker-than-expected gain of 67,000 jobs in November (half of consensus at 135,000), a 5-month low, compared with 121,000 jobs in October. The survey week for initial weekly unemployment claims, an important leading employment indicator, rose to a nearly two-year high at 228,000 for the week ended Nov. 16 (230,000 in January 2018). This is much higher than the 49-year cycle low of 193,000 in April 2019. But by the end of November, claims had fallen back down to 203,000, a 7-month low. The lagging JOLTS fell to an 18-month low in September at 7.024 million jobs, down 8% from its record 7.626 million in November 2018