This is an excellent jobs report late in the business cycle and something of an early holiday gift for the economy and investors.
Even after adjusting for striking GM workers returning to the workforce, labor market dynamics remain robust as the private sector generated 254,000 new jobs in November, fueled by a gain of 206,000 private service sector jobs. Total jobs gains in the month were 266,000; the unemployment rate was 3.5%, a 50-year low.
This is the twenty-first month in a row that the unemployment rate has been at or below 4%. Given the fact that Federal Reserve Chairman Jerome Powell has set a very high hurdle for hiking rates, one would anticipate that this would bolster asset prices across financial markets, and support risk-taking in the real economy. This is an excellent jobs report late in the business cycle and something of an early holiday gift for the economy and investors.
An unbalanced economy
In our employment report preview, we expected the data to reflect the unbalanced economy and it did. The service sector remains strong, while the trend in manufacturing remains weak. We think that roughly 50,000 or so auto workers returned to work following the end of the UAW strike, influencing both the manufacturing and goods producing estimates. Thus, in the December data forward-looking investors should anticipate a return to a trend of essentially no growth in manufacturing and a much slower pace of growth in goods-producing jobs, in contrast with the 48,000 gain implied by the Bureau of Labor Statistics’ first estimate.
The only modest point of concern in the November employment report was in the wage data. Average hourly earnings growth slowed to 0.248% from 0.318% in October. On a year-ago basis, wage growth eased to 3.14% and the three-month average hourly pace slowed to 2.98%. Nevertheless, our estimate is the median household will look at this as a positive and will not constrain outlays on goods and services. Total private hours worked remained unchanged at 3.14% and aggregate hours worked advanced 2.1%, both of which bode well for the kick off to the traditional holiday season.
The service sector improvement was driven by strong gains of 74,000 jobs in education and health, 45,000 in leisure and hospitality, and 38,000 in business services. Those three ecosystems generated 59% of all job creation on the month and 76% of new jobs created in the service sector. Once one adds in other gains across the economy, the November report implies gains in high wage categories, which underscores our 2020 economic outlook: as long as the consumer continues to increase spending by 2-2.5%, the risks of the economy are skewed towards a falling probability of recession.