The November job market report was a mixed bag. Nonfarm payrolls were in line with expectations, continuing to reflect a more moderate pace of job growth in 2016 (although still relatively strong). The unemployment rate fell to 4.6%, the lowest since August 2007, but reflecting a drop in labor force participation. Average hourly earnings edged lower, following a sharp gain in October, and the trend appears to be more moderate than what we saw a month ago. Strangely, the focus is on the factory sector, which accounts for 8.4% of payrolls.
The trend in job growth has remained moderately strong this year, albeit slower than last year. Private-sector payrolls rose 1.7% y/y in November, while manufacturing jobs fell 0.4% y/y. That weakness reflects the energy contraction, sluggish business fixed investment, and a slowdown in global economic growth.
Slack in the job market is being reduced, but much remains. How much is a key issue for Federal Reserve policymakers. The employment/population ratio is trending higher, but mostly for the key age cohort (those aged 25-54).
Average hourly earnings surprised to the downside in November, but the underlying trend is trending higher. Adjusted for inflation, wage growth has slowed, still providing support for consumer spending growth, but less than a year ago.
There’s always a lot more going on under the surface in the job market. Millions of jobs are created and millions are destroyed each quarter. We usually focus on the net job figures. In manufacturing, we’re seeing relatively slow turnover in comparison to the 1990s. If we lost jobs due to NAFTA, we also gained enough to offset the impact. Increased trade with China clearly had an impact on U.S. manufacturing activity. However, we’ve also seen major impacts from technology change, mergers, and increased efficiencies (management of inventories, better communications through the supply chain).
Protectionist policies are self-defeating. Neither side wins in a trade war. Efforts would be better focused on boosting demand and enhancing productivity growth. The Carrier deal (800 jobs saved, 1,300 jobs still going to Mexico, a $7 million cost to Indiana taxpayers) is not a good blueprint.
© Raymond James
© Raymond James
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