Payroll Gains Beat Expectations, but the Pace Is Slowing
Total nonfarm payrolls posted a 263,000 gain in November versus a 284,000 rise in October (revised up by 23,000), while September had an increase of 269,000 (revised down by 46,000). The November result easily beat the consensus expectation of 200,000. However, the gain is still the slowest since April 2021.
Excluding the government sector, private payrolls posted a gain of 221,000 in November following the addition of a net 248,000 jobs in October. The average monthly gain over the 23 months since January 2021 was 449,000. However, the monthly increases appear to be slowing. Over the 14 months from January 2021 through February 2022, the average monthly rise was 535,000; for the five months from March 2022 through July 2022, the average was 376,000; and over the last four months, the average has dropped to 239,000 (see first chart). Despite beating expectations, the trend in payroll gains is slowing.
Furthermore, the results among the various industries were mixed in November, with just two industry groups, healthcare and leisure, accounting for 70 percent of the net gain for the month. Four industries had payroll declines in November.
Within the 221,000 increase in private payrolls, private services added 184,000 versus a 12-month average of 322,300, while goods-producing industries added 37,000 versus a 12-month average of 60,400.
Within private service-producing industries, leisure and hospitality added 88,000 (versus a 90,300 twelve-month average), education and health services increased by 82,000 (versus 77,700), information added 19,000 (versus 13,400), and financial gained 14,000 (versus 12,300; see second chart).
Within the 37,000 addition in goods-producing industries, construction added 20,000, durable-goods manufacturing rose by 11,000, nondurable-goods manufacturing expanded by 3,000, and mining and logging industries added 3,000 (see second chart).
While a few of the services industries dominate actual monthly private payroll gains, monthly percent changes paint a different picture. Gains and losses were more evenly distributed, as three industries gained at least 0.5 percent, but four had declines (see third chart).
Average hourly earnings for all private workers also had a bigger gain than expected, rising 0.6 percent in November, the third consecutive acceleration in growth (see fourth chart). That puts the 12-month gain at 5.1 percent, down from a recent peak of 5.6 percent in March 2022 (see fourth chart). Average hourly earnings for private, production and nonsupervisory workers rose 0.7 percent for the month and are up 5.8 percent from a year ago, down from 6.7 percent in March.
The average workweek for all workers fell to 34.4 hours in November from 34.5 in October while the average workweek for production and nonsupervisory dropped to 33.9 hours versus 34.0 in the prior month.
Combining payrolls with hourly earnings and hours worked, the index of aggregate weekly payrolls for all workers gained 0.5 percent in November and is up 7.6 percent from a year ago; the index for production and nonsupervisory workers rose 0.6 percent and is 8.7 percent above the year ago level.
The total number of officially unemployed was 6.011 million in November, a drop of 48,000. The unemployment rate was unchanged at 3.7 percent, while the underemployed rate, referred to as the U-6 rate, decreased by 0.1 percentage points to 6.7 percent in November (see fifth chart). Both measures have been bouncing around in a flat trend over the last few months.
The employment-to-population ratio, one of AIER’s Roughly Coincident indicators, came in at 59.9 percent for November, down 0.1 from October, the second consecutive drop and still significantly below the 61.2 percent in February 2020.
The labor force participation rate also fell by 0.1 percentage point in November, to 62.1 percent. This important measure has been trending flat recently but is still well below the 63.4 percent of February 2020 (see sixth chart).
The total labor force came in at 164.481 million, down 186,000 from the prior month and nearly matching the February 2020 level (see sixth chart). If the 63.4 percent participation rate were applied to the current working-age population of 264.708 million, an additional 3.34 million workers would be available.
The November jobs report shows total nonfarm and private payrolls posted additional albeit slower gains than recent prior periods. Despite beating expectations in November that some might interpret as a “strong labor market,” the data show the trend in payroll gains is decelerating. Furthermore, concerns about future payroll gains persist in light of aggressive Fed interest rate increases, a modest upward trend in initial claims for unemployment insurance, and an increase in job cut announcements. Still, the level of open jobs remains high, and the number of available workers is low, suggesting the labor market remains tight.
Persistently elevated rates of rising prices are driving aggressive Fed rate increases. At the same time, the fallout from the Russian invasion of Ukraine and periodic lockdowns in China continue to disrupt global supply chains. Finally, the AIER Leading Indicators Index remains well below the neutral 50 threshold, suggesting an elevated level of risk for the economic outlook. Caution is warranted.