INDICATOR: November Employment Situation
KEY DATA: Payrolls: +266,000; Private: +254,000; Revisions: +41,000; Unemployment Rate: 3.5% (down 0.1 percentage point); Wages: +0.2%
IN A NUTSHELL: “While it is not unusual to periodically get outsized employment numbers, this report shows the economy is still in very good shape.”
WHAT IT MEANS: There may be few qualified workers to out there to hire, but somehow, someway, businesses keep hiring people at a very solid pace. Job gains in November were well above expectations. The return of the GM strikers did add back over forty thousand workers who were out of the October numbers. There were big increases in both bricks and clicks retailers as the holiday hiring shifted into what looks like really high gear. Healthcare and restaurants keep adding workers like crazy, trends that can be sustained. And local governments appear to be flush with cash and spending it on payrolls. In other words, the gains were widespread. Indeed, 61.6% of the private industries followed were up. That is a pretty good number. Wages rose moderately, but the slow deceleration in the rate of increase remains in place. Despite high demand and low supply, wages are not soaring. That is good for profits, though not great for household spending power.
As for the unemployment rate, it edged down, though the details were a little odd. The labor force barely increased and the participation rate actually declined. Still, the labor force has grown by 1% over the year, which is pretty decent.
The first/initial reading of December consumer confidence came out today and it was surprisingly strong. The University of Michigan’s Consumer Sentiment Index rose by 2.4 points and both the current conditions and expectations indices were up. Despite all the things going on in Washington, households seem to be focusing on their own financial situation and with jobs plentiful, they are a pretty happy bunch.
MARKETS AND FED POLICY IMPLICATIONS: Don’t you just love it when the economic data and the pronouncements of the Fed Chair go in opposite directions? Mr. Powell led his band of economic forecasting challenged central bankers through a period of rate cutting because of concerns about the economy. Yet the economy never stumbled. So, now we have rates that leave minimal room for the Fed to ease further and the real softening, if it is to come, is still out there. Now I know the Fed members will say that their rate cut policy helped sustain growth. But they will also note, as Chair Powell has frequently, that it can take up to a year for interest rate changes to flow through the economy. What I am saying is that the Fed didn’t have to do what it did, an argument I have been making consistently, and now the data show that is indeed the case. But for investors, this report should be a shot in the arm. The lower rates still have some potential to add to growth over the next six months, if only the uncertainty created by the trade situation dissipates.
Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.
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