Headline nonfarm payrolls rose by 178,000 in November, versus an anticipated 180,000. Meanwhile, October’s data point was revised upward to 142,000. The unemployment rate decreased to 4.6%, while the participation rate was lower at 62.7%. There was another strong rise of 446,000 in the group classified as “not in the labour-force,” following an increase of 425,000 in October. The U6 unemployment rate (an expanded measure of unemployment that takes into account marginally attached and part-time workers) was lower at 9.3% in November. The household survey showed an increase of 160,000 jobs in the month, following a decline 43,000 in October. Meanwhile, the adjusted household survey (the BLS’s attempt to make it more comparable to the payroll survey) pointed to an increase of 390,000 after a rise of 83,000 in October.
Private nonfarm average hourly earnings were -0.1% lower in November, which is the weakest since December 2014 (0.1% for production and nonsupervisory workers) and follows a strong 0.4% rise in October (hence some payback here). Annually, they are now 2.5% higher (2.4% for production and nonsupervisory workers). This decrease suggests there is still only moderate upward pressure on wages. Private aggregate weekly hours for production and nonsupervisory workers were 0.1% higher in the month, after 0.1% in October; they are 1.3% higher on a year ago. The 178,000 change in November’s payrolls was largely due to professional and business services (63,000), education and health services (44,000), leisure & hospitality (29,000) and government (22,000). There was a decline in payrolls for the manufacturing sector (4,000, fourth consecutive decline) and retail jobs (8,000). Meanwhile, the mean duration of unemployment was again lower at 26.3.
With a December rate increase now essentially a done deal, the focus is starting to shift to how many more increases we’ll see in 2017. Before the election the answer to this was likely to be 1 or probably 2. Following the election, however, Trump is proposing to layer on top of a labour market that is already at full employment, more infrastructure stimulus, and tax cuts. Introducing these policy changes will now be more difficult with an unemployment rate already at 4.6%. In terms of employment, as the market continues to tighten we should start to see payroll growth slow (some industries are already reporting a shortage of workers). Yet, even a rate of 100,000 per month should still enough to keep the unemployment rate stable. Much, however, also depends on the participation rate, and some further increases here would be desirable, though there are strong secular forces still holding it back. The fall in wages may largely be due to a more difficult comp from October, but overall gains are still modest (better for profit margins). The bottom line is that, the fall in the unemployment rate is encouraging but was likely helped by a lower participation rate. It also means that president-elect Trump is starting his presidency with some fairly solid momentum, which will make it more difficult for him to argue his case for more stimulus.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.