A look behind at the December 2 week is mainly focused on conditions in the labor market which continued to display the sort of vigor that is keeping consumer confidence – and spending – up.
The ADP National Employment Report disappointed with a mild increase of 67,000 for private payrolls in November. However, the BLS’s Employment Situation for November painted a much firmer picture for conditions with a hefty rise of 266,000 in nonfarm payrolls, of which 254,000 were in private payrolls. There was a net upward revision of 41,000 in the prior two months, although that was roughly offset by the return of about 45,000 GM workers after the end of the UAW strike. Average hourly earnings more-or-less maintained the recent underlying trend with a 3.1% increase year-over-year. The unemployment rate managed to tick down a tenth to 3.5%, the U6 rate was also down a tenth to 6.9%, as was the participation rate to 63.2%. Slack in the labor market? What slack?
Initial jobless claims suggested that the normal spate of year-end layoffs are not happening to the same extent as usual. Claims were up only 203,000 in the week ended November 30 and there was no hint that the Thanksgiving holiday introduced any noise into the data. Rather, businesses are reluctant to lose trained workers to a labor market ready to snap them up. The insured rate of unemployment was 1.2% in the November 23 week, where it has been with only rare and small downward exceptions since May 2018.
The Challenger report on layoff intentions in November indicated that businesses have by-and-large made the big layoff announcements for 2019 and further job cuts are going to be cautious. If the year-to-date number of announced intentions are higher than the first 11 months of 2018, it is still a relatively modest pace of layoffs and generally in a few narrow sectors. Hiring intentions remain surprisingly good even with slower economic activity. Businesses are seeking qualified workers – skilled and unskilled – in a market that is unusually tight.
The NFIB report on the job market for small businesses in November aligns with this. Firms have plenty of job openings and are planning to hire more, but qualified applicants are relatively rate and compensation is rising to attract and retain workers.
The ISM Manufacturing Index for November confirmed the factory sector remained in recession for a fourth straight month. New orders are lacking and as a consequence production is speeding through incoming orders and working down backlogs quickly. Orders from abroad are scanty and imports are slow, in part in response to worries about tariffs. Inventories are being managed carefully to ensure stockpiles don’t accumulate. Nonetheless, many factories are still hiring if they can find the right skillset.
Data on all factory orders for October lags the ISM number by a month, but it clearly supports that the dollar value of new orders for hard goods are were weak outside of the defense sector and that orders for aircraft are presently reliant on defense buyers for what strength there is. Nondurables orders were not much changed in October, in part of less volatility in petroleum and chemical prices.
On the other hand, the ISM Non-Manufacturing Index for November extended its string of expansionary readings to 118 months. If conditions are more uneven and modest in character, activity is in no immediate danger of falling into contraction with continuing new orders and business activity. Service businesses are also in need of qualified workers and willing to hire those they find.
Sales of motor vehicles in November recovered after the downshift in October that was related to the strike at GM. Consumers are still exercising their preference for vehicles in the light trucks category, especially with prices for motor fuels less demanding of discretionary income and stable. This should provide some lift for the November data on retail and food sales.
While there were a few Fed officials providing public comment during the week, none of it was related to monetary policy due to the communications blackout period before the December 10-11 meeting. Markets would have liked to hear from them, but it is a good guess that they were satisfied with the data, particularly that related to the labor market. There was no reason to alter the signal for a pause in short-term rates.
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