The American labor market bounced back in November with the creation of 227,000 jobs, a rebound from the hurricane-related distortions of October and further evidence that the labor market remains remarkably stable.
Once one corrects for the noise in the data, the pace of hiring looks to be near 150,000, which is consistent with what is necessary to maintain full employment.
In addition to the 227,000 jobs created in November—RSM had forecast 220,000—revisions added 56,000 new jobs to the previous two months’ reports. Those revisions resulted in a net change in employment of 283,000 inside the Bureau of Labor statistics data released on Friday.
The large increase in November’s top-line figure, though, most likely overstates the true underlying pace of hiring, and we think it best to sum up the increase and the upward revisions over the past two months and divide by two.
That calculation implies that hiring advanced at a 141,500 pace, which is consistent with the three-month average of 159,000 and six-month average of 153,000 posted prior to the October report.
The unemployment rate increased to 4.2% because of 193,000 people leaving the workforce while wages increased at a 0.4% pace on the month and by 4% from one year ago.
Policy implications
The rebound in hiring and the increase in the unemployment rate support the Federal Reserve reducing its policy rate by 25 basis points to a range between 4.25% and 4.50% at its meeting this month.
But with wage growth at 4% and an economy on track to grow by more than 3% in the current quarter, the Fed will most likely pause any further cuts until its March meeting.
Following the publication of the November jobs data, the federal funds futures market implied an 86% probability that the Federal Reserve will reduce its policy rate by 25 basis points this month.
In addition, with the coming policy changes next year—lower taxes, increased spending, lighter regulation and rising import taxes—the Fed will be appraising how those changes will affect the economy as it shapes monetary policy.
The data
Total private hiring increased by 194,000, which was fueled by a 160,000 increase in service sector hiring. Of those, 79,000 were in the private education and health care.
Goods-producing jobs increased by 34,000 and there were 10,000 new construction jobs produced on the month, while the manufacturing sector added 22,000 jobs.
The financial sector added 17,000 jobs, professional business services added 26,000, leisure and hospitality added 53,000 and total government hiring advanced by 53,000.
Read more of RSM’s insights on the economy and the middle market.
The only sectors that declined were trade and transport, which lost 23,000 positions, and retail trade, which lost 28,000 in November.
The median duration of unemployment stands at 10.5 weeks, which means that people who lose their jobs typically find one in less than three months.
But more than 40% of those who are unemployed are now out of work for greater than 15 weeks, which suggests that finding work is a bit more difficult than was the case in the immediate post-pandemic recovery and economic expansion.
Employment of those in their prime working years of 25 to 54 stands at 89.3% for men and 77.7% for women.
The takeaway
Firms continue to manage their workforces carefully. As such hiring has cooled to a pace near 150,000, which is consistent with keeping employment conditions stable while the pace of firings holds near 220,000 a week.
From our vantage point, this data speaks to a remarkable stability across the labor force even as finding a job is becoming a bit more difficult.
A labor force at full employment is not generally well understood. For now, a slower pace of hiring under these conditions is eminently rational.
Yet the puzzle of longer-term unemployment and the interplay between a tight labor market and the substitution of technology for labor demands further research.
