The employment situation is a set of labor market indicators. The unemployment rate measures the number of unemployed as a percentage of the labor force. Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls. (Bureau of Labor Statistics, U.S. Department of Labor) Why Investors Care
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Highlights
Employment in November came in moderately healthy but average hourly earnings jumped noticeably. However, modest downward net revisions to October and September partially offset November's gain. Today's report did not increase the odds for a 50 basis point cut in interest rates by the Fed but may not have hurt the odds much either. Nonfarm payroll employment in November posted a healthy 94,000 gain, following revised increases of 170,000 in October and 44,000 in September. The November payroll increase was above the consensus forecast for a 65,000 boost in jobs. The initial October estimate of a 166,000 increase was revised up 4,000 and September was revised down 52,000 from the prior estimate of a 96,000 increase. For October and September combined, the net revision was down 48,000. As in recent months, the November gains in employment were in the service sector as both construction and manufacturing jobs declined.
On a year-on-year basis, nonfarm payroll employment declined to up 1.1 percent in November from up 1.2 percent in October.
Within the payroll survey, strength was in the service-providing industries, which posted a 127,000 boost, following a 192,000 gain in October. The latest month was led by professional & business services, up 30,000; government, up 30,000; education & health services, up 28,000; leisure & hospitality, up 26,000; and retail trade, up 24,000.
Manufacturing fell by 11,000 in November, following a 15,000 drop in October. Construction continues to decline from subprime problems and excess supply of unsold housing. Construction jobs fell 24,000 after a 9,000 decline in October. Natural resources & mining edged up 2.000 in November.
On the inflation front, average hourly earnings posted a 0.5 percent surge in November, following a 0.1 percent increase in October. The November rise in wages was above the consensus forecast for a 0.3 percent increase. The average workweek in November was unchanged at 33.8 hours and matched the consensus expectations.
Manufacturing may not be as soft as suggested by employment alone. The average workweek edged up from 41.2 hours in October to 41.3 hours in November. Aggregate hours in manufacturing rebounded 0.2 percent in November, following a 0.4 percent decrease in October. The November increase suggests that industrial production is likely to be modestly positive for the month.
Turning to the household survey, the civilian unemployment rate held steady at 4.7 percent in November. The consensus had expected a 0.1 percentage point rise to 4.8 percent. Household employment surged 696,000 in November, following a 250,000 drop the prior month. The household survey has a much smaller sample size than the payroll survey and is more volatile. The labor force rose by 617,000 in November, while the number of unemployed fell 78,000.
Today's report shows a moderately healthy labor sector and even one where labor markets are somewhat tight and possibly with upward pressure on wages. Were the Fed not concerned about problems in the credit markets, today's report would not support an interest rate cut by the Fed. But given the problems in credit markets and in housing, the report is not strong enough to stand in the way of at least a 25 basis point interest rate cut.
Nonfarm payroll employment in October came in quite strong while wage inflation actually eased. Nonfarm payroll employment in October jumped 166,000, following revised increases of 96,000 in September and 93,000 in August. But initial unemployment claims have since risen and point toward sluggish job gains for November. Construction jobs are likely to post another decline along with manufacturing. And we could see some sizeable losses in financial services as a result of subprime fallout. Layoffs are likely to lead to a modest increase in the unemployment rate which came in unchanged at 4.7 percent in October. But look for a soft increase in wages, which posted a 0.2 percent rise in October, following a 0.3 percent boost in September. Only a very robust employment report would derail a Fed rate cut on December 11 and that is not likely.
Nonfarm payrolls Consensus Forecast for November 07: +65,000
Range: -10,000 to +100,000
Unemployment rate Consensus Forecast for November 07: 4.8 percent
Range: 4.8 to 4.8 percent
Average workweek Consensus Forecast for November 07: 33.8 hours
Range: 33.8 to 33.8 hours
Average hourly earnings Consensus Forecast for November 07: +0.3 percent
Range: +0.2 to +0.4 percent
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During the mature phase of an economic expansion, monthly payrolls gains of 150,000 or so are considered relatively healthy. In the early stages of recovery though, gains are expected to surpass 250,000 per month. |
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The civilian unemployment rate is a lagging indicator of economic activity. During a recession, many people leave the labor force entirely, so the jobless rate may not increase as much as expected. This means that the jobless rate may continue to increase in the early stages of recovery because more people are returning to the labor force as they believe they will be able to find work. The civilian unemployment rate tends towards greater stability than payroll employment on a monthly basis. It reveals the degree to which labor resources are utilized in the economy. |
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