November Payrolls Smash Expectations: 266K Jobs Added, As Mfg Workers Soar

Heading into today's November payrolls report, DB's Jim Reid wrote that "the consensus for November nonfarm payrolls is pegged at 185k (vs. 128k in October) but after Wednesday’s disappointing ADP (67k vs. 135k expected) print it’s likely that the whisper number is lower." And sure enough, we agreed following our recent article showing how the US labor market was aobut to crack.

As it turns out, both we and DB were dead wrong, because moments ago the BLS reported that in November, a whopping 266K jobs were added, smashing expectations of 183K and the double digit whisper number, in what was the single best month for US payrolls since January 2019, with the prior jobs print was also revised sharply completing the picture of a labor market in perfect, yet strange, health.

The change in total nonfarm payroll employment for September was revised up by 13,000 from +180,000 to +193,000, and the change for October was revised up by 28,000 from +128,000 to +156,000. With these revisions, employment gains in September and October combined were 41,000 more than previously reported.

The strong job number surprised almost everyone: here is Bloomberg economist James Callan noting that "the labor market is holding up surprisingly well despite a deceleration in economic momentum at year-end and uncertainty on the U.S.-China trade front. Bloomberg Economics expects the labor market to continue to tighten and the unemployment rate to drop to 3.3% by the end of next year."

The reason for the surprise: a near-record 199K difference between ADP and BLS payrolls, which in November was a whopping 199K.

Job growth has averaged 180,000 per month thus far in 2019, compared with an average monthly gain of 223,000 in 2018. In November, notable job gains occurred in health care and in professional and technical services. Employment also increased in manufacturing, reflecting the return of GM workers from a strike.

Indeed, as shown in the chart below, the number of manufacturing workers in November soared by 54K, the most since 1998, thanks to the influx of formerly striking GM workers.

The unemployment rate resumed its recent decline, and in November dropped from 3.6% to 3.5%, a fresh 50 year low...

... even as the unemployment rate for blacks and Hispanics posted a modest increase.

More importantly, while average hourly earnings rose 0.2% from the prior month, slightly below expectations, annual wage growth increased by 3.1%, with last month's wage growth revised from 3.0% to 3.2%, suggesting employers are responding to a tight labor market; wages for production and non-supervisory workers rose 3.7% annually after a 3.8% gain, which was the best since 2008.

Specifically, Average hourly earnings for all employees on private nonfarm payrolls rose by 7 cents to $28.29. Over the last 12 months, average hourly earnings have increased by 3.1 percent. In November, average hourly earnings of private-sector production and nonsupervisory employees rose by 7 cents to $23.83.

At the same time, the average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in November. In manufacturing, the average workweek increased by 0.1 hour to 40.5 hours, while overtime decreased by 0.1 hour to 3.1 hours. The average workweek of private- sector production and nonsupervisory employees held at 33.5 hours.

Looking at which industries added jobs, the BLS has the following breakdown:

  • In November, health care added 45,000 jobs, following little employment change in October (+12,000). The November job gains occurred in ambulatory health care services (+34,000) and in hospitals (+10,000).
  • Employment in professional and technical services increased by 31,000 in November.
  • Manufacturing employment rose by 54,000 in November, following a decline of 43,000 in the prior month. Within manufacturing, employment in motor vehicles and parts was up by 41,000 in November, reflecting the return of workers who were on strike in October.
  • In November, employment in leisure and hospitality continued to trend up (+45,000).
  • Employment in transportation and warehousing continued on an upward trend in November (+16,000). Within the industry, job gains occurred in warehousing and storage (+8,000) and in couriers and messengers (+5,000).
  • Financial activities employment also continued to trend up in November (+13,000), with a gain of 7,000 in credit intermediation and related activities.
  • Mining lost jobs in November (-7,000), largely in support activities for mining (-6,000). Mining employment is down by 19,000 since a recent peak in May.
  • In November, employment in retail trade was about unchanged (+2,000). Within the industry, employment rose in general merchandise stores (+22,000) and in motor vehicle and parts dealers (+8,000), while clothing and clothing accessories stores lost jobs (-18,000).

So what does this mean for the Fed? According to Bloomberg Fed reporter Steve Matthews, Powell and his colleagues are "almost certainly very pleased with this report, which offers some vindication of their view the economy is “in a good place” and there is no need to cut rates again."

Despite voicing concerns about a trade war inspired slowdown, employers are responding to a tight labor market with slightly higher wages. This too will be welcome at the Fed, which has been disappointed by lackluster paycheck gains. And there's nothing inflationary about the report -- no indication rates would need to move higher anytime soon to head off too-high prices.

As Matthews concludes, "there are still risks to the Fed outlook - from the president’s trade war with China in particular - but for now it’s hard to argue with Powell’s view that monetary policy is “in a good place” as well as the economy."

Here one key tangent for trade war with China, noted by Bloomberg: The blowout numbers reduce the urgency for Trump to make a trade deal with China since escalating tariffs have so far failed to significantly dent the U.S. labor market.