JPM: "Smells A Little Like Tapering"
JPM's chief US economist Michael Feroli smells the November jobs report, smells the Fed's balance sheet, and concludes "smells a little like tapering."
Jobs report smells a little like tapering
The labor market had another solid month, generating a net 203,000 jobs last month. The big story for November, however, was the unemployment rate, which dropped 0.3%-point to 7.0%. That decline occurred as the participation rate only partly reversed October's huge drop, and at 63.0% the participation rate is 0.2%-point below the September level. The continuing disappointment in labor supply will prompt some soul-searching at the Fed, where the house view has been that the participation rate would bounce back once job creation picked up. Over the past two years the labor market has created almost 4-1/2 million jobs, yet the participation rate has continued to decline. At some point the Fed will have to accept that the labor supply is trending lower, and hence that the decline in the unemployment rate truly represents progress toward their full employment mandate. In the meantime, we still think December is a close call but that the FOMC will hold off on tapering until January. While fiscal issues appear less ominous and employment prospects look favorable, we still think that before pulling back on asset purchases the Fed would like to see more evidence that housing is stabilizing and that inflation is finding a floor.
The details of the establishment survey were generally pretty solid and relatively close to expectations. Private employers added 196,000 jobs, with goods-producers adding a decent 44,000 positions, led by a 27,000 gain at manufacturers. Private service employment growth moderated a touch to 152,000. Delivery drones aren't stealing human jobs yet, as service employment was led by a 31,000 increase in transportation and warehousing jobs. Overall the breadth of job growth has improved in recent months, and last month 63.5% of industries increased employment. As expected the workweek increased a tick in both the production worker and all-worker measures, recouping an earlier decline. Average hourly earnings increased another 0.2%, and show no evidence of accelerating or decelerating from their recent trend of growth around 2-2.25%.
Unlike in the establishment survey, workers laid off in the government shutdown would be counted as without a job, hence October and November exhibited some volatile swings in the household survey. Employment jumped 818,000 in November after declining 735,000 in October, and the employment-to-population ratio recovered to 58.6% last month, the same as in September. Unemployment fell 365,000, a decline probably also driven by government employees returning to work. The number of persons not in the labor force but who want a job has plunged by over a million in the past four months (this is reported nsa, but the sa number has also plummeted). The unemployment rate was 7.6% when Bernanke laid out the 7.0% terminal condition for asset purchases in June. One could argue that all of the decline since then has been due to falling participation, but all of the fall in participation over that period can be accounted for non-participants who do not want a job.
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