• November’s 210,000 new jobs marks worst headline number of 2021
• Unemployment rate ticked lower to 4.2%
• Wage growth increased 0.3% mom, 4.9% yoy
• Labor force participation edged up to 61.8%
• Fed ready to change policy

The US economy created far fewer jobs than expected in November, in a sign that hiring started to slow even ahead of the new Covid threat. Nonfarm payrolls increased by just 210,000 for the month. So far this year, monthly job growth has averaged 555,000. The change in total nonfarm payroll employment for September was revised up by 67,000, from +312,000 to +379,000, and the change for October was revised up by 15,000, from +531,000 to +546,000. With these revisions, employment in September and October combined is 82,000 higher than previously reported.

Companies in the hospitality business, mostly restaurants and hotels, created just 23,000 new jobs last month. That largely explains the big shortfall in hiring in November. These businesses lost the most jobs during the pandemic and are still far from a full recovery. Though the sector has regained nearly 7 million of the jobs lost at the depths of the pandemic, it remains about 1.3 million below its February 2020 level, with an unemployment rate stuck at 7.5%. The lingering delta strain of the coronavirus appears to be keeping some customers away and companies are struggling to fill a chasm of open jobs. The biggest job gains took place in white-collar professional jobs and warehouse and transportation. Professional and business services added 90,000 jobs in November and employment in transportation and warehousing increased by 50,000. Employment also grew steadily in construction and manufacturing. Construction employment rose by 31,000 in November, following gains of a similar magnitude in the prior 2 months whilst manufacturing added 31,000 jobs. Retailers and government cut jobs in November.

The US jobless rate, meanwhile, dropped sharply by -0.4% to 4.2% from 4.6% and touched a new pandemic low. Labor force participation rate edged up to 61.8% and reached the highest level since the start of the pandemic. Average hourly earnings rose 0.3% mom

The unemployment rate fell sharply to 4.2% from 4.6%. The number of unemployed persons fell by 542,000 to 6.9 million. Both measures are down considerably from their highs at the end of the February-April 2020 recession. The labor force participation rate increased for the month to 61.8%, its highest level since March 2020. The labor force participation rate had been 63.3% in February 2020 before the pandemic meaningfully impacted the job market. The employment-population ratio increased by 0.4 percentage point to 59.2% in November. A more encompassing measure of unemployment that includes discouraged workers and those holding part-time jobs for economic reasons dropped even more, tumbling to 7.8% from 8.3%. The household survey painted a brighter picture, with an addition of 1.1 million jobs as the labor force increased by 594,000.

As worker demand remains elevated, wages have also risen and contributed to the inflation seen across the economy this year. Average hourly earnings rose for an eighth straight month, increasing by 0.3% in November compared to October. Average hourly wages rose by 4.8% in November over last year, matching October's revised annual rate. Yet the rate of inflation has also soared and largely eaten up the extra earnings. The cost of living has surged 6.2% in the past year, based on the consumer-price index.

Fed ready to change policy

November’s nonfarm payrolls increased only 210,000, less than half of the consensus estimate. Although the previous two months were revised up by 82,000, this miss means that with just one final employment report left in 2021, nonfarm payrolls are still roughly four million jobs below their pre-pandemic level. The bright spot was a 0.4% decrease in the unemployment rate, as it dropped to 4.2% from 4.6%. The decline was also for the right reasons, as it occurred due to a 542,000 drop in the number of unemployed people while the civilian labor force rose almost 600,000 and the participation rate increased to 61.8%.

The US economy added back fewer jobs than expected in November, while the unemployment rate fell further than anticipated to the lowest since February 2020. US employers have added back jobs on net in every month so far in 2021 as vaccinations, re-openings and a recovery in the high-contact services industries helped boost hiring. But despite the solid rehiring throughout the year, labor force participation remains short of prepandemic levels. The labor force participation rate had been 63.3% in February 2020 before the pandemic meaningfully impacted the job market. The stubbornly depressed participation rate has been attributed to a host of factors, including lingering concerns about COVID-19 infections, difficulties finding child care and a desire by many workers to leave their jobs and pursue roles with more flexibility, wages or benefits. With the latest emergence of the Omicron variant, these myriad factors may further inhibit a rebound in labor force participation.

Labor supply shortages do not show material signs of improvement, and could actually worsen in coming months with the federal vaccine mandate taking effect on January 4, 2022. As such, labor market conditions should remain tight, perpetuating strong wage growth. On balance, robust labor demand and further COVID improvements should support strong labor market gains last month, though we are mindful of the challenges that are likely to persist in the labor market for the foreseeable future.

Policymakers have been watching the employment figures closely to gauge how close the economy is to a full recovery from the depths of the pandemic. Although the headline number was weak, the details of the November jobs report were much better. The big drop in the unemployment rate, along with a large increase in the labor force, is still good news. If more people are starting to look for work again, this would allow for stronger near-term hiring. The paltry increase in hiring last month probably would not deter the Fed from speeding up plans to end its bond-buying program to stimulate the economy. The high demand for labor shows the US is still primed to grow at a rapid clip and the central bank is more worried now about high inflation.

Federal Reserve officials put a new wrinkle into the picture earlier this month when they indicated that the measures, they instituted to support growth could be coming to an end sooner than expected. In congressional testimony, Fed Chairman said he expects the central bank’s policy committee to discuss at its meeting this month stepping up the level at which it is tapering its monthly bond purchases. Fed Chairman Powell said he sees the unwinding to conclude “a few months” sooner than expected, a move that would open the possibility for interest rate hikes.

Source: BIMB Securities Research - 6 Dec 2021