The November nonfarm payrolls report will be released Friday, and despite early reports of softness in manufacturing, we still expect a net increase in total employment of 165,000 jobs and the unemployment rate to hold at 3.6%, thanks to a healthier service sector.
We see this gain even though the ISM Manufacturing Index and ADP private sector employment reports showed contraction in manufacturing and goods-producing hiring. The ADP survey, which came out Wednesday, showed a sluggish 67,000 increase in goods production jobs and a gain of 85,000 in the service sector.
But the ISM nonmanufacturing employment sub-index implies a pickup in service-sector hiring, which supports our expectation of healthy hiring in November.
Overall, we expect a gain of 150,000 jobs in the private sector and 15,000 in the government sector. The risk to the forecast is skewed toward a slower pace of hiring than that implied by our estimate of 165,000 and the consensus forecast of a net gain of 190,000.
In many respects, the employment report will reflect the unbalanced state of the economy. The service sector remains solid amid a weak manufacturing sector that has pulled back on hiring this year. The numbers alone tell the story: In 2019, the service sector has created 1.39 million jobs while the manufacturing sector has created 2,000. For workers, this means that hiring will be tilted toward lower-paying jobs in the service sector, with a far slower pace of hiring in the higher-paying jobs in the goods-producing, manufacturing and construction sectors.
One wild card in the monthly report will be how the Bureau of Labor Statistics accounts for the return of the 50,000 or so workers affected by the UAW strike at General Motors. In October, there was a net decline of 36,000 manufacturing jobs, largely because of the strike. Even with the return of those workers, the trend in those higher-paying categories will remain soft at best, regardless of how the BLS treats their return.
The bright spots for higher-paying job creation will be in the education and health care sectors, which have averaged a net gain per month of 47,000 and increased overall hiring through October of 1.96%. We see no reason why higher-paying job creation within the ecosystem will not continue in November.
As for wages, growth will most likely stay on trend near 0.3% on a monthly basis and 3% on a year-ago basis. In October, the three-month average annualized pace of wage growth was 3.34%, which supports the relatively strong spending outlook during the holiday shopping season.
Hours worked should remain unchanged at 34.4, while aggregate hours worked in October increased 1.8% on a three-month average annualized pace.