KEY DATA: Payrolls: 178,000; Private: 156,000; Revisions: -2,000; Unemployment Rate: 4.6% (down 0.3 percentage point)
IN A NUTSHELL: “With job growth as high as can be expected given the lack of workers and the unemployment rate near full employment, there is little reason for the Fed not to raise rates.”
WHAT IT MEANS: If it is all about jobs, and it is supposed to be, then there is little to be concerned about. The November employment report was about as good as can be expected. Yes, the total was hyped by a somewhat higher than expected rise in government employment, but there was also a surprising decline in retail jobs. Given all the reports that firms were adding seasonal workers like crazy, that drop was not expected. Manufacturers are still paring payrolls despite positive indications from the Institute for Supply Management. With qualified workers in short supply, temporary help firms are once again doing a decent business.
On the unemployment front, the rate dropped to its lowest level since August 2007. That is, we are at pre-recession levels. Even the “real” or really stupid unemployment rate is back to where it was in April 2008. In other words, all measures are near or at full employment. The labor force was down, but that bounces around like crazy. The participation rate declined as well, but it is still up for the year and where models, using demographic trends, pretty much predict it should be.
The one outlier in the report was a decline in average hourly wages. I have commented before that I really don’t know how to interpret this number as the data are less than a decade old. There is also a compositional issue in that older, higher paid workers are retiring at an accelerating pace and being replaced by lower paid Millennials. That could be biasing the number downward. Given the biggest problem firms face is finding workers, it makes not sense that wages would be declining.
MARKETS AND FED POLICY IMPLICATIONS: Payrolls expanded solidly, especially given the lack of available workers. It is not that firms aren’t trying to hire, they just cannot find qualified workers at the wages they want to pay. So don’t expect any major acceleration in job gains going forward. Yes, we can have some months with above 200,000 new workers being added, but given the slow growth in the labor force and the lack of available, let alone qualified workers, it is hard to see that there will but a major change from the current 175,000 per month trend. So, Janet Yellen needs to suck it up and raise rates on December 14th and I expect the Fed to do just that. But more importantly, the Fed members are starting to remind the world that if fiscal policy actually starts helping out, the Fed doesn’t need to keep rates at record lows. They are watching Washington carefully and no good expansionary fiscal policy will go unpunished. That is, the Fed is likely to use aggressive tax cutting and growing spending as an excuse to raise rates more than the markets currently expect. That is the warning some members are starting to give and those comments should be heeded.