US hiring surge in November

• Employment growth increased 266,000 in November

• The unemployment rate dropped to 3.5%

• Wage growth was a respectable 0.2% mom and 3.1% yoy

• Labor force participation rate little change at 63.2%

• Latest data corroborates FOMC view that the current stance of monetary policy remains appropriate

Hiring came roaring back in November, as employers added a whopping 266,000 net new jobs. In addition to the robust November gains, revisions brought up totals from the two previous months. September’s estimate went up 13,000 to 193,000 and the initial October count increased by 28,000 to 156,000. Those changes added 41,000 to the previous tallies and brought the 2019 monthly average to 180,000, compared with 223,000 in 2018. Over the past three months, the economy had added an average of 205,000 new jobs.

The jobs growth was the best since January’s 312,000 and well clear of the November 2018 total of 196,000. While hopes already were up, much of that was based on the return of General Motors workers following a lengthy strike. That dynamic indeed boosted employment in motor vehicles and parts by 41,300, part of an overall 54,000 gain in manufacturing. The vehicles and parts sector had fallen by 42,800 in October. However, the job gains were spread among a multitude of sectors. Health care added 45,000 positions after contributing just 12,000 in October. Leisure and hospitality increased by 45,000 and professional and business services rose by 31,000; the two sectors respectively are up 219,000 and 278,000 over the past 12 months.

Wage growth continued to outpace inflation last month but remained stubbornly below what would be expected with an unemployment rate at its lowest level in half a century. The unemployment rate dipped to 3.5% from 3.6% to match the lowest level since the end of 1969. The participation rate or share of working-age people in the labor force, fell to 63.2% from a six-year high of 63.3% the prior month. The U-6, or underemployment rate, fell to 6.9%, matching the lowest level since 2000, from 7%. Wages rose 0.3% mom in November and was a respectable 3.1% yoy.

The unemployment rate of 3.5%, down from 3.6% in October, is back to the 2019 low and matches the lowest jobless rate since 1969. According to calculations from the Atlanta Federal Reserve, the US economy needs to create about 107,000 jobs a month to keep the unemployment rate steady. A separate gauge of unemployment that includes discouraged workers and the underemployed declined as well, falling to 6.9%, one-tenth of a percentage point below October.

Wage growth continued to outpace inflation last month but remained stubbornly below what would be expected with an unemployment rate at its lowest level in half a century. Average hourly earnings rose 0.3% mom and 3.1% yoy in November, a slight uptick from a month earlier but short of the peak gains seen in early 2019.

Latest data corroborates FOMC view that the current stance of monetary policy remains appropriate

The November jobs data back the Fed’s view that the labor market remains strong, supporting consumers and continued economic growth. That may give the central bank more room to keep interest rates on hold at their meeting this week amid the uncertainty of President Donald Trump’s prolonged trade talks with China.

The 7-cent increase in average hourly wages last month, however, was disappointing considering that the jobless rate is at a half-century low. Wages were up 3.1% from a year earlier. However modest the pay increase, it has given Americans the confidence to keep buying, which is crucial in an economy where consumer spending accounts for 70% of the gross domestic product. Wage gains should also support holiday shopping and ease concerns about a slowdown.

Meanwhile, a separate report showed consumer sentiment rose to a seven-month high and buying attitudes for household durables improved, adding to economic cheer as the holiday shopping season gets under way. The University of Michigan’s gauge of consumer sentiment rose to a preliminary December reading of 99.2 from a final November reading of 96.8. Combined with the strong November jobs report, rising confidence eases some worries about the near-term economic outlook.

Among businesses, worries about the economy seemed to peak this summer. Since then, there have been signs that slowdown fears are easing. November’s job report, more than any other report in recent months, squashed any lingering concerns about an imminent recession in the US economy. Employment growth also shows no signs of slowing further despite the historically low unemployment rate.

The strong jobs report comes amid a challenging year for the US economy. Recession fears surged in late summer amid worries that a global slowdown would spread to American shores. The back-and-forth lobbing of tariffs between the US and China also raised fears of instability, and the bond market sent what has been a reliable recession indicator when short-term government yields rose above their longer-term counterparts. The Fed reacted by cutting its benchmark interest rate three times, part of what officials deemed insurance against a potential slowdown. Those recession fears have ebbed recently, though, as consumer and business sentiment remain high, spending remains resilient and the stock market scales new highs.

For an FOMC that will be meeting this week, the most recent slab of data corroborates its view that the current stance of monetary policy remains appropriate. The FOMC will be on hold this week, and if the solid read on the labor market is sustained, barring any escalation in the trade war, the case for further easing is weaker.

Source: BIMB Securities Research - 9 Dec 2019