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First Cut: Jump in November payrolls suggests FOMC was right to pause in cutting rates

Nonfarm payrolls jumped 266,000 in November. Even allowing for the adding back in of workers in the manufacturing sector after the GM strike, this is an exceptional increase. Then there was a net upward revision of 41,000 to the prior two months, yet more evidence that the labor market isn’t feeling the pinch of the slowdown in the economy. It might even suggest that a modest-but-sustainable pace of growth is what the labor market needs to maintain its momentum.

Private payrolls were up 254,000 in November with goods-producers up 48,000 and service providers up 206,000. Gains in construction and manufacturing got some offset from a 7,000 decrease in mining. Services benefited from a bump in hiring for education and health services of 74,000, leisure and hospitality of 45,000, and professional and business services of 38,000.

Government payrolls were up 12,000, in part reflecting preparations for the 2020 census.

For the fourth quarter to-date, payrolls have averaged 211,000 jobs per month, not materially different from the 193,000 in the third quarter, but still a pick up. The six-month moving average reached 196,000, its strongest since 203,000 in March.

Average hourly earnings were up a mild 0.2% in November from October, but the up 3.1% from November 2018 indicates no letup for the steady underlying pace of increases. The workweek was unchanged at 34.4 house.

The strength in the establishment survey was echoed in the household survey. The unemployment rate eked out a one-tenth decline to 3.5% (3.535% unrounded) and the U6 rate was also down a tenth to 6.9%. The same for the participation rate which dipped to 63.2% in November. The size of the labor force was increased by gains in the number of employment and decreases in the number of unemployed.

Those working part-time for economic reasons were 116,000 fewer at 4.322 in November, although job losers were up 132,000 to 2.806 million. Job leavers were down 72,000 to 777,000. New entrants to the labor market were down 41,000 to 586,000.

Slack in the labor market is hard to find. The FOMC may well find that their October decision to signal a pause in cutting short term rates – in part to address low inflation – was justified as the strength in the labor market means that it requires some attention in a balanced approach to monetary policy.

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