The American labor market tightened noticeably in November despite a slower pace of hiring, according to Labor Department data released Friday.
The labor market is tightening, and wages are rising in what is the best labor market for workers since the late 1990s.
Rarely has an estimate produced by the Bureau of Labor Statistics showed such a divergence between the two surveys of the labor market—the establishment and household surveys—that are the foundation of the monthly tally.
We expect that the top-line establishment survey will be revised upward over the next two to three months and will look more similar to the more expansive household survey, which includes the self-employed among other categories.
Between the surveys, a clear message emerges: The labor market is tightening, and wages are rising in what is the best labor market for workers since the late 1990s.
The establishment survey, which is used to estimate the top-line change in jobs, indicated an increase of 210,000 total jobs—well below the consensus forecast of 550,000.
But the household survey, which is used to estimate the unemployment rate, showed a gain of 1.13 million jobs amid a surge of new business formations as the unemployment rate fell to 4.2%.
In addition, the household survey indicated that the labor force increased by 594,000 and the labor force participation rate increased to 61.8% from 61.6% in November.
The threshold for statistical significance inside the household survey is plus or minus 500,000 jobs, so the net change in employment of 1.13 million and the increase of 594,000 in the labor force should not be discounted.
In our estimation, the household survey ought to be given more weight by firms and policymakers when making critical decisions in the near term. Average hourly earnings increased by 0.3% on the month and were up by 4.8% on a year-ago basis as the competition for workers continued to drive up wages.
For those who are not familiar with the household survey, it has a more expansive scope than the establishment survey because it includes self-employed workers whose businesses are unincorporated, unpaid family workers, agricultural workers and private household workers, all of whom are excluded by the establishment survey. It also provides estimates of employment for demographic groups.
This data will not change the Federal Reserve’s plans to accelerate its tapering operations, which we think will be doubled from $15 billion per month to $30 billion per month when the central bank meets on Dec. 15. Our sense is that policymakers will look past the disappointing top-line numbers and move quickly to wrap up its pandemic-era policy of large-scale asset purchases of Treasury bonds and mortgage-backed securities.
While the market has priced in three full rate hikes of 25 basis points next year, we expect the Fed to raise rates twice next year starting in June with the chance that it may accelerate that campaign in March.
Doubts about the validity of the top-line establishment estimate will almost certainly revolve around the decline of 20,000 jobs in the retail sector. That is because retailers have traditionally added to their payrolls ahead of the holiday season, suggesting that the retail number will be revised up sharply over the next few months.
Hiring by industry
Total private hiring increased by 235,000 on the month with 60,000 jobs added in goods-producing jobs, 31,000 in construction and 31,000 in manufacturing, all of which are higher paying compared to the 175,000 service-sector jobs that were added on the month. Trade and transport jobs increased by 37,000 in November, the financial sector added 13,000 jobs, and business services rose by 90,000.
Hiring in leisure and hospitality slowed from a three-month average of 116,000 to 23,000, which looks questionable and will almost certainly be revised up in the coming months. Temporary hiring increased by 6,000 jobs, and the information sector had a net decline of 2,000 jobs. The government sector declined by 25,000 jobs.
The pandemic
In November, 3.6 million people reported that they had been unable to work because their employer closed or lost business because of the pandemic—that is, they did not work at all or worked fewer hours at some point in the four weeks preceding the survey because of the pandemic.
This measure was little different from the 3.8 million in October. Among those who reported in November that they were unable to work because of pandemic-related closures or lost business, 15.8% received at least some pay from their employer for the hours not worked, little changed from the prior month.
Among those not in the labor force in November, 1.2 million people were prevented from looking for work because of the pandemic, which was also little changed from October.
The jobs report for December, scheduled to be released on Jan. 7, will incorporate annual revisions in seasonally adjusted household survey data. Seasonally adjusted data for the most recent five years are subject to revision.
