Rebound in household jobs

Bottom Line

Household employment rebounded significantly in November, adding a 10-month high of 747,000 jobs, up from a loss of 348,000 in October, its worst in more than three years. This drove the unemployment rate back down to 3.7% from 3.9% and fueled a rapid 0.4% month-over-month (m/m) gain in wages. The development likely assuaged recession fears and probably keeps the Federal Reserve from easing interest rates next March, as many investors still believe will happen. But, as usual of late, the overall labor-market picture is not quite as rosy.

Nonfarm and private payrolls softer Nonfarm payrolls rose by a stronger-than-expected 199,000 jobs in November (consensus at 185,000). But the Labor Dept. revised September gains down by 35,000 jobs and stated that the return of striking auto and film industry workers likely boosted that count by another combined 47,000. All told, the adjusted payroll growth of 117,000 jobs last month was weaker than headline. 

Private payroll gains were even softer, rising by 150,000 jobs in November (consensus at 159,000), with September and October revised down by a combined 61,000 jobs. The adjusted gain of only 89,000 jobs in November was roughly flat with the downwardly revised gain of 85,000 jobs in October. The difference between nonfarm and private hiring in November was due to a sizable gain of 49,000 state and local government jobs.

Positive metrics… The unemployment (U-3) and labor impairment (U-6) rates declined to 3.7% and 7.0%, respectively, and the participation rate rose to 62.8%. Hours worked rose a tick to 34.4, and average hourly earnings held steady at a 4.0% annual rate. 

…but sector details choppy The manufacturing sector added 28,000 jobs in November, somewhat reversing the 35,000 lost in October due to the 6-week UAW strike. But retailers shed jobs for the third time in the last four months during the important Christmas season. Furthermore, temporary hiring has been flat or negative in each of the past 10 months.

Important labor-market indicators are weak across the board: 

• ADP private payroll survey November grew by a much weaker-than-expected 103,000 jobs (consensus at 130,000), while October was revised down by 7,000 jobs to a gain of 106,000. While that’s better than the 89,000 jobs added in September (the worst private jobs report since January 2021), this 3-month average of 99,300 private jobs created is less than half the pace of 219,000 jobs created in the same 3-month period a year ago. Also, job stayers experienced their slowest wage growth in two years, up by 5.6% year-over-year (y/y) in November and by 8.3% y/y for those who changed jobs. 
• Initial weekly jobless claims This high-frequency leading employment indicator increased by 10% over the past two months to 220,000 claims for the week ended December 2. The 4-week moving average has similarly grown by 7% over the past two months, and continuing claims have risen by 12% over the past three. 
• Challenger job cuts November layoffs of 45,500 amounted to a surge of 24% from October, though the pace declined sharply by 41% from a year ago. Retail cut nearly 6,600 jobs last month (14% of total layoffs), and technology companies cut 5,000 (11%). Seasonal retail hiring is at its lowest level since 2013. 
• Lagging Job Openings & Labor Turnover Survey (JOLTS) October job openings declined to their lowest level since early 2021, falling to a much lower-than-expected 8.733 million (consensus at 9.3 million), down 6.6% from a downwardly revised 9.35 million in September and down 27% from a record 12.027 million in March 2022. There are now 1.3 job openings for every unemployed worker (the lowest since September 2021), down from a peak of 2.0 in March 2022. With 3.63 million voluntary quitters in October, the quits rate held steady for the fourth consecutive month at a cycle low of 2.3%, the lowest level since 2020. That suggests workers are less confident today in their ability to find another job. This metric peaked at 3.0% in April 2022. 

Wage inflation and hours worked rise Average hourly earnings doubled to a 0.4% m/m gain in November from October’s 0.2% m/m gain (a tick above consensus), which annualizes to a well-above trend 4.8% pace. The Fed would like to see this metric stabilize at 3%. On a y/y basis, wages were unchanged at an in-line 4.0% increase. Average weekly hours worked ticked up to 34.4 in November. Each increase of 0.1 hour worked is the equivalent of adding an estimated 350,000 jobs to the economy. This is important, as employers tend to cut hours before they cut staff. 

Unemployment and labor impairment rates fall, participation rate rises Household employment (an important leading employment indicator) added 747,000 jobs in November, a 10-month high, compared with a loss of 348,000 jobs in October, its single worst month since April 2020 at the depth of the Covid recession. The number of unemployed people declined by 215,000 in December, compared with an increase of 146,000 in October.

As a result, U-3 plunged to 3.7% in November from a new 22-month high of 3.9% in October,. That decline quieted chatter about the “Sahm Rule,” which posits that all recessions experience a 0.5% increase in unemployment on a rolling 3-month basis within a 12-month window. 

U-6 declined to 7.0% in November from 7.2% in October, which matched a 21-month high, up from the cycle low (dating back to 1994) of 6.5% in December 2022. 

The civilian labor force surged by 532,000 jobs in November, bouncing from the loss of 201,000 in October. As a result, the participation rate ticked up to 62.8% in November, matching a post-pandemic high. The pre-pandemic cycle high was 63.3% in February 2020. 

K-shaped recovery widens The unemployment rate for workers with at least a bachelor's degree was unchanged at 2.1% in November for the third consecutive month, down from 2.2% in August but still above September 2022’s cycle low of 1.8%. However, the unemployment rate for workers with less than a high school diploma soared to 6.3% in November from 5.8% in October, up from 5.5% in September and 5.2% in July, compared with its 31-year low of 4.4% in November 2022. 

Sector details mixed:

• Temporary help (an important leading employment indicator) lost 14,000 jobs in November, after breaking even in October and losing jobs in each of the previous eight months. 
• Government hiring rose by 49,000 jobs in November (paced by 17,000 state and 32,000 local jobs), compared with 65,000 new jobs in October, 63,000 in September, 51,000 in August and 91,000 in July. 
• Manufacturing added 28,000 jobs in November, which partially reversed the 35,000 jobs lost in October due to the six-week United Auto Workers (UAW) strike. The ISM manufacturing index has been in contraction territory under 50 in each of the past 13 months at 46.7 in November.
• Construction added a tepid 2,000 jobs in November, compared with a more robust 25,000 jobs in October, due to a near tripling of mortgage rates from 3% to a 22-year high of 8% over the past two years. 
• Retail lost 38,000 jobs in November, after losing 5,000 jobs in October. Retail has shed jobs four times in the past six months amid the critical Christmas season.
• Leisure & hospitality added 40,000 jobs in November, after adding 42,000 in October and 76,000 in September.

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