A Positive Surprise From November Payrolls

Scott Anderson
Chief Economist

Nonfarm payroll growth accelerated to 266k jobs last month easily surpassing the consensus forecast looking for a 180k job gain.

Manufacturing alone added 54k net jobs in November more than reversing the 43k job loss in October as the GM strike came to an end. There was also a net 41k job upward revision to payrolls for September and October.

The job gains proved strong enough to push the U.S. unemployment rate back down to 3.5% from 3.6% in October. In short, all around this was a very strong employment report that will bolster confidence at the Fed that monetary policy is indeed in a “good place” right now and their decision to stop their rate cuts for now appears prescient.

The revised nonfarm employment data now show a clear uptrend in payrolls on a longer-term 3 month average basis – a convincing indication that the U.S. labor market has truly strengthened since this summer. In July, the 3 month average monthly nonfarm jobs gain was only 135k. In November, the 3 month average jobs gain improved to 205k jobs. The fastest 3 month pace for average monthly job gains since January.

Job gains were visible across most sectors last month led by a strong 74k job gain in education and health care. This was a 48% larger monthly gain in education and health care jobs than the prior three month average and more than double the number of jobs created in this category in October.

Manufacturing managed to add 54k jobs despite the ISM manufacturing index showing the sector mired in contraction over the last four months. Last month’s manufacturing jobs gain surpassed the 43k job loss in October due to the GM strike, suggesting that other manufacturers also added to payrolls last month. There were decent job gains last month for professional and business services  and leisure and hospitality too, though the number of jobs created in these sectors slipped a bit from October’s pace. Net job gains in retail trade, information, financial services, construction, and mining remained lackluster in comparison.

Seeing outsized job gains last month in just two categories, manufacturing and education and health care, we don’t expect the job growth we saw in November to be repeated again anytime soon. Both ISM manufacturing and non-manufacturing PMIs suggest a deterioration in goods producing and service producing industry growth in the months ahead.

Given the focus on the consumer going into the holiday season and the importance of consumer spending to our economic growth outlook for 2020, earnings growth will be a very important indicator to keep an eye on. Average hourly earnings increased another 0.2% in November, somewhat below the consensus forecast of 0.3%, but in-line with our forecast. On a year-ago basis average hourly earnings are up 3.1%, just a slight deterioration from the February peak of 3.4% growth.

However, after subtracting out inflation, real average hourly earnings are still running at a more anemic 1.3% pace. In other words, no sign that the low 3.5% U.S. unemployment rate is yet fueling faster wage growth that will be able to sustain the recent pace of real consumer spending growth next year. Yes, the labor market is in a good place right now, but there is not much assurance in today’s jobs report it will stay there next year.

To learn more, check out this week’s U.S. Outlook Report.

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