Instant Analysis: November employment report

Scott Anderson
Posted by Scott Anderson
Chief Economist

Economists got their Christmas present early this year. A blowout November jobs report put a smile on my face this morning.  November’s +321K nonfarm payroll jobs easily surpassed consensus expectations for +230K.

Crowd of people walking to work (seen from behind) in an urban center walkway.Some analysts were talking about downside risks to the number due to weather, a weaker than expected ADP report, and slight uptick in initial jobless claims on the month.  There was no sign of those issues here.  The labor market is healing faster than almost any analysts expected just a few months ago.  The upward revision of +44K jobs for September and October only add to the evidence.

Hourly earnings a bright spot

But the most positive piece of today’s report was the jump in hourly earnings growth — up +0.4% in November, the best monthly gain since June of last year. This confirms the larger wage increases we are seeing in the Employment Cost Index over the last two quarters, and it appears the Fed is starting to take note in the latest Beige Book report. Watch these hourly earnings numbers going forward: It means wage growth could be accelerating as the labor market tightens.  Great news for cash-strapped consumers that haven’t been able to benefit from rising stock and home prices.

Equities, however, wobbled on the news as some investors saw this improvement in wages as a harbinger of an earlier rate hike from the Fed next year.  I still expect the first rate hike from the Fed in September, as low inflation gives the FOMC some flexibility to let the economy run hot for a while; but if we get a few more job reports as strong as this morning’s, our forecast could be moved earlier into the middle of next year.

Gains for nearly all sectors

By sector, we saw job growth accelerate for nearly all major sectors except for leisure and hospitality and government, though job gains were seen in these sectors as well. Business services led the way, adding a net (+86K) jobs, retail trade (+50K), education and health (+38K), manufacturing (+28K), construction (+20K), financial (+20K), and information (+4K).    These robust payroll gains are more consistent with the big employment jump we saw last month in the household employment survey, and the outsized increases we are seeing in consumer confidence.

The U.S. unemployment rate held at October’s expansion low of 5.8% in November.   The labor force increased +123K, and the labor force participation rate was steady at 62.8%.  On a less bright note, the average duration of unemployment increased a bit — 33.0 weeks from 32.7 weeks in October.

Looking ahead

Bottom-line, an outstanding employment report this month that caps the improvement in real GDP growth we have seen in recent quarters. The report fits in well with our 3.1% growth outlook for the U.S. economy next year, but if job gains like these are sustained in the months ahead, our forecasts could prove too conservative.

The hawks may have more ammunition to run with at the next FOMC meeting to make a case to act sooner on interest rates.  This could keep equity markets on edge about earlier rate hikes next year, but we think declining inflation pressures balance out the timing risks.

Stocks opened mixed, the 10-year Treasury yield increased six basis points to 2.29%, and the U.S. dollar strengthened against most major currencies.

Reminder: All comments are moderated prior to publication and must follow our Community Guidelines.

Submit an Idea

[contact-form-7 id="32" title="Share An Idea"]

You are leaving the Bank of the West Change Matters site. Please be aware: The website you are about to enter is not operated by Bank of the West. Bank of the West does not endorse the content of this website and makes no warranty as to the accuracy of content or functionality of this website. The privacy and security policies of the site may differ from those practiced by Bank of the West. To proceed to this website, click OK, or hit Cancel to remain on the Bank of the West Change Matters site.