The Jobs Market is Solid, but Continues to Show Signs of Gradual Deceleration
The Jobs Market is Solid, but Continues to Show Signs of Gradual Deceleration
The November Jobs Report was largely consistent with what economists were expecting. The economy added 199K payrolls, although 35K of that gain likely reflected workers returning to work from strikes, not actual new job growth. (The number of workers absent from their jobs due to labor disputes fell from 96K in October 96K to 61K in November.) The underlying rate of job growth is likely around 160K per month, which is about the 2019 average (164K).
The current rate of growth may not be enough to keep the unemployment rate stable. If it is sustained, we predict that the unemployment rate will gradually tick upwards. That is because the labor force has grown by 311k people each month, on average, over the past 12 months. While economists once believed that we only need to add 75K-100K jobs a month to keep pace with population growth and keep the unemployment rate steady, we believe the break-even rate of job growth may be substantially higher now.
Here is the latest data on some key aspects of the economy covered in the report:
Wage growth. Average hourly earnings grew 4.0% YoY, down from 4.1% last month, and average weekly earnings grew more slowly at a pace of 3.7% (since working hours declined over the year). On a 3-month annualized basis, hourly earnings grew 3.3% and weekly earnings 3.3%. The data suggests that wage growth is cooling, but only ever so gradually. Hourly and weekly earnings also paint a different picture. While growth in weekly earnings is consistent with the Fed’s 2% inflation target, growth in hourly earnings is still higher. It is unclear which measure is most important for the path of inflation.
The distribution of job gains. Job gains were fairly narrowly distributed across the economy, with the vast majority of jobs added in health care (+77K) and government (+49K). The 28K gain in manufacturing merely reflected the end of the auto workers’ strike. In the rest of the economy, job growth has effectively ground to a halt. The retail sector posted losses despite strong holiday season spending to date, likely partly the effect of an accelerating shift to self-checkout. The main reason for lackluster job growth across most of the economy is high interest rates, which have caused net domestic investment to decline since 2022 Q2.
Aggregate labor income. Aggregate labor income—that is, the number of employees times average weekly working hours times the hourly wage—grew rapidly in November at a rate of 9.1% annualized, or 5.3% YoY. Strong labor market earnings will likely at least partially counteract the negative effect on consumer spending of slowing consumer lending.
