November’s Jobs Report Is Strong, But There Are Caveats
October’s jobs report saw the jobs market bounce back fairly strongly after a September that was quite bleak thanks to the twin economic impacts of Hurricane Harvey in Texas and Hurricane Irma in Florida. Heading into November, most analysts were expecting slight cooling down from the fairly good numbers that we saw during that month. Heading into the report, the average from analysts was calling for roughly an additional 200,000 new jobs added during the month. As it runs out, the number was slightly stronger than that, albeit weaker than what we saw the month before:
Total nonfarm payroll employment increased by 228,000 in November, and the unemployment rate was unchanged at 4.1 percent, the U.S. Bureau of Labor Statistics reported today. Employment continued to trend up in professional and business services, manufacturing, and health care.
The unemployment rate held at 4.1 percent in November, and the number of unemployed persons was essentially unchanged at 6.6 million. Over the year, the unemployment rate and the number of unemployed persons were down by 0.5 percentage point and 799,000, respectively. (See table A-1.)
Among the major worker groups, the unemployment rate for teenagers increased to 15.9 percent in November. The jobless rates for adult men (3.7 percent), adult women (3.7 percent), Whites (3.6 percent), Blacks (7.3 percent), Asians (3.0 percent), and Hispanics (4.7 percent) showed little change. (See tables A-1, A-2, and A-3.)
The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 1.6 million in November and accounted for 23.8 percent of the unemployed. Over the year, the number of long-term unemployed was down by 275,000. (See table A-12.)
The labor force participation rate remained at 62.7 percent in November and has shown no clear trend over the past 12 months. The employment-population ratio, at 60.1 percent, changed little in November and has shown little movement, on net, since early this year. (See table A-1.)
otal nonfarm payroll employment increased by 228,000 in November. Employment continued to trend up in professional and business services, manufacturing, and health care. Employment growth has averaged 174,000 per month thus far this year, compared with an average monthly gain of 187,000 in 2016. (See table B-1.)
Employment in professional and business services continued on an upward trend in November (+46,000). Over the past 12 months, the industry has added 548,000 jobs.
In November, manufacturing added 31,000 jobs. Within the industry, employment rose in machinery (+8,000), fabricated metal products (+7,000), computer and electronic products (+4,000), and plastics and rubber products (+4,000). Since a recent low in November 2016, manufacturing employment has increased by 189,000.
Health care added 30,000 jobs in November. Most of the gain occurred in ambulatory health care services (+25,000), which includes offices of physicians and outpatient care centers. Monthly employment growth in health care has averaged 24,000 thus far in 2017, compared
with an average increase of 32,000 per month in 2016.
Within construction, employment among specialty trade contractors increased by 23,000 in November and by 132,000 over the year.
Employment in other major industries, including mining, wholesale trade, retail trade, transportation and warehousing, information, financial activities, leisure and hospitality, and government, changed little over the month.
In addition to the numbers above, the Bureau of Labor Statistics reported that total nonfarm payroll employment for September, which was initially negative before being revised upward in the October report, was revised upward yet again from +18,000 to +38,000. The numbers for October was revised downward from +260,000 to +244,000. This represents a net upward revision of +3,000 jobs for both months combined. Combined with this month’s jobs numbers, this puts the average jobs growth for the past three months at +170,000 net jobs created per month, an improvement from where we stood a month ago but still not entirely impressive. For the year to date, we’ve seen a total of +1, 790,000 net jobs created for a monthly average of +178,273 (rounded) net jobs created per month. This is also an improvement from where the average stood last month but not an entirely impressive number and certainly not one that indicates any imminent massive increase in hiring by employers, a subject addressed later in this post. During his campaign for President, Donald Trump promised to create 25,000,000 jobs during his Presidency. That would require the creation of 3,125,000 per year over an eight-year term for an average of 261,000 new jobs per month. Over a four-year term that would require 6,250,000 per year, for an average of 521,000 new jobs per month. At the current three-month average, it would take 12.25 years to get to Trump’s goal. At the current average for the year-to-date, it would also take more than 11.5 years. And that assumes no recessions in the intervening period.
Looking deeper into the numbers, the average workweek across the board increased by one-tenth of an hour to 34.5 hours while average hourly earnings rose 5 cents to $26.55. Over the year, average hourly earnings have risen by 64 cents or a relatively modest 2.5%. The long-term unemployment/underemployment number, meanwhile, increased slightly to 8.0% while both the labor force participation rate and employment/population ratio remained relatively unchanged for the month. Additionally, as noted above, the top-line U-3 Unemployment Rate, which is already near or at historically low levels, remained unchanged at 4.1%. As has been the case for the better part of the year, the biggest concern in the numbers isn’t the jobs numbers but wage growth, which remains tepid at best.
The New York Times puts a positive spin on the numbers:
The American job market is the strongest it’s been in a decade, and arguably the strongest since 2000. The United States has now added jobs for 86 consecutive months — a downward blip in September was later revised to show a small gain — and the unemployment rate is lower than it ever got during the last boom, which ended when the housing bubble burst. Even wage growth, long the weak spot in an otherwise strong recovery, is showing signs of picking up.
“It’s a really, really strong economy,” said Tom Gimbel, chief executive of LaSalle Network, a staffing firm in Chicago. “Companies really want to take advantage of the economy, so they want to hire and get while the getting’s good.”
The latest batch of strong numbers come as congressional Republicans are on the verge of passing a $1.5 trillion tax cut plan, which President Trump could sign into law this month. Economists expect the bill to provide at least a modest lift to the economy — but they aren’t sure that’s a good idea. With unemployment so low and the economy fundamentally healthy, a tax cut could lead the economy to overheat, pushing up inflation and forcing policymakers at the Federal Reserve to raise interest rates faster than planned.
“It’s a very poorly timed fiscal stimulus,” said Joseph Song, an economist at Bank of America. “It kind of raises the risk of a boom-bust cycle.”
Job growth has gradually slowed since 2014, when the American economy added close to three million jobs. But hiring remains remarkably steady. Employers are on track to add about two million jobs in 2017, a solid pace eight years into an economic expansion. The hurricanes that hit Texas and Florida in September led to a brief slowdown, but hiring quickly bounced back.
Economists aren’t sure how long the growth can continue. The unemployment rate is approaching the level many economists consider “full employment” — the point at which essentially everyone who wants a job can find one. But the unemployment rate may not fully reflect the number of available workers. The labor force participation rate — the share of adults working or actively seeking work — has been edging up in recent years, a slight dip in October notwithstanding. That suggests that a wealth of job opportunities could be drawing people into the work force.
“I think there is a bit more slack to be burnt off,” Mr. Song said. “There are still people on the sidelines that are looking to come back to the labor market.”
Many companies, however, report that hiring is getting harder. Michael Big, who runs a small general contractor in the Chicago area, said his company had turned away projects in recent months because he can’t find enough workers.
“Unfortunately we don’t have the labor to take all the projects that are coming in,” Mr. Big said. His competitors are having the same problem, he added. “We’re all grumbling and complaining about the same thing, when we’re not poaching guys from each other.”
Mr. Big’s experience raises a question: If workers are so hard to find, why aren’t companies raising pay? In his case, Mr. Big says that in order to pay more, he would have to charge his customers more, and if he does that, he’ll be outbid by his competitors.
“The labor is there, but they’re not skilled enough for the wages they’re asking,” Mr. Big said. He said construction workers without special skills were asking $15 an hour, well above the roughly $12 an hour he can afford.
The slow pace of wage growth has been a mystery in recent months. The increase in average hourly earnings is barely enough to keep up with inflation.
Most economists expect wage growth to pick up as the unemployment rate falls. Other measures of earnings have already shown modestly faster gains, and there are signs that businesses are feeling pressure to raise pay. For the first time in six years, chief executives surveyed by the Business Roundtable, a coalition of big corporations, reported that labor expenses were their biggest cost pressure in the fourth quarter.
“With the unemployment rate this low and with just not enough people coming back into the work force to fill positions, firms are having to resort to offering higher wages,” said Joseph Brusuelas, chief economist of RSM, a financial consulting firm.
While I am not going to claim to be an expert, my view is far more sanguine. As things stand, it seems unlikely that we’ll see the topline U-3 Unemployment Rate fall significantly below the 4.0 to 4.2% range at any point in the near future. In part, this is due to the fact that the rate is now at a rate that is actually somewhat below where it was during the height of the recovery that pre-dated the Great Recession, and at that point, economic growth was much stronger than it has been even for the year so far. Additionally, as noted above, we’re fairly close to the point that economists consider to be “full employment,” meaning that we’re at or near the point where everyone who is looking for a job has a job and where employers are not looking at significant increases in employment. As noted in the Times report above, there is also some anecdotal evidence that employers are finding that some positions are starting to go unfilled because they’re unable to find qualified people to fill them. While this could be due in part to the fact that there aren’t enough people out there with the experience needed for some positions, it could also mean that the jobs market is approaching some kind of equilibrium and that we’re unlikely to see significant increases absent some kind of significant and currently unforeseeable factors. Additionally, while wage growth is positive it is far from strong and certainly doesn’t seem to be attracting people who are sitting on the sidelines of the jobs market rather than actively seeking employment. Finally, it’s worth noting that all of this is happening at a point when the recovery from the Great Recession is slowly its ninth year. This is fairly long for a recovery compared to what we’ve seen in the era since the Second World War and it seems likely that further growth in both the economy and the jobs market is likely to be slow.
Republicans and the Trump Administration have been selling their tax deal based at least in part on the argument that reducing corporate taxes will lead to increased hiring and wages for American workers, but there’s little sign that this will actually happen. The CEOs of many of America’s top corporations, for example, have said that they would likely pass tax savings along to shareholders rather than investing it in the kind of expansion that would necessitate new hiring or increasing wages of existing employees. If that’s the case and these wage growth numbers remain consistent, then middle-class America is unlikely to see much of a benefit from a tax deal that already seems lop-sided in favor of high-income earners. Additionally, the fact that the tax package is expected to add significantly to the budget deficit and national debt suggests that it could end up being more of a drag on economic growth than a stimulus.
On a final note, I’d be remiss not to address the political implications of all of this. When Barack Obama was President, the right would routinely call jobs numbers like those we’ve seen so far in 2017 “disappointing.” In fact, average jobs growth so far this year is lagging somewhat behind where it was in the period between 2014 and 2016. The most likely explanation for that is the simple fact that the economy has been consistently growing since the summer of 2009 and there’s not nearly as much room for growth at this point. Given that, one wonders what Republicans will have to say about that.