Labor Market Remains Healthy Despite Slowdown in Hiring

The U.S. added 155,000 jobs and unemployment remained at 3.7 percent

Zions Bank Dec 7, 2018

November’s employment report may be just what the markets ordered. Job creation in November declined from the rapid pace of October, registering below expectations at 155,000. While still representative of a solid labor market, the softer-than-expected job gains may give the Fed pause over its aggressive rate hike path of 3-4 increases in 2019, especially considering the growing concerns over relations with China and the recent slowdown in business investment and consumer confidence. The unemployment rate remained level at a 49-year low of 3.7 percent in November, and annual wage growth expanded at 3.1 percent for the second month in a row.

Top Takeaways from the Report

The slowdown in hiring could dampen the Fed’s outlook

Financial markets have been hit by a strong bout of volatility in October and November, and this employment report may bolster the case of some market participants that the Fed’s interest rate path is not sustainable. Fears over the Fed’s future rate path of another interest rate hike in December and 3-4 increases in 2019 have markets concerned, especially given the ongoing trade spat with China. Already bond markets have seen segments of the so-called “yield curve” invert; signaling investor fears that future growth is set to decline. The fewer-than-expected 155,000 jobs added in November could give the Fed some pause in their outlook for 2019.

While it is all but set in stone that the Fed will increase rates by another quarter-point at its next meeting in December, investors will be extremely keen to see if November’s employment report produces a significant change in the Fed’s overall outlook. One thing to look out for is changes in the Fed’s balance sheet reduction program. While a radical shift in the Fed’s interest rate path is unlikely to materialize, a moderation in its balance sheet reduction could be a softer signal to markets that the Fed recognizes their fears.

The labor market remains healthy

Despite some softness, November’s employment report was solid and it is hard to find much to be overly concerned about. The labor market added 155,000 jobs, which marks the 98th-consecutive month of job creation. The official U.S. unemployment rate remained at a 49-year low of 3.7 percent, while labor force participation stayed even at 62.9 percent. The broader measure of unemployment – which includes those looking for full-time work while in a part-time job, and discouraged workers – rose slightly to 7.9 percent. Annual wage growth, which was the big story last month, kept up its brisk pace of growth at 3.1 percent; this is a good sign that last month’s increase was not a fluke and that higher wages may be here to stay. Wages will be important to watch as many retailers such as Amazon have upped their minimum wages to $15 an hour. If these wages remain sticky through the holiday season and into next year, higher wage growth may be the new norm for the foreseeable future.

Growth by Select Industry

The trade, transportation, and utilities sector added the largest number of jobs in November of 53,000. The majority of jobs were created in the transportation and warehousing segment, which added 25,000.

Education and health services added 34,000 jobs in November, with health care adding 32,100 employees. The sector has added a total of 473,000 jobs over the past year.

The manufacturing sector continued to expand, adding 27,000 jobs in November. After revisions, the manufacturing sector has added jobs for the past 16-consecutive months.

The Bottom Line – The U.S. labor market and economy remain solid, but signs of a slowdown are beginning to emerge. The ongoing trade spat with China is having a significant impact on financial markets and is starting to spill over into the economy and affect consumer confidence. All eyes should be on the Fed at the December meeting.


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