NFP: U.S. Adds 155K vs 198K Jobs Expected In November

by Ike Obudulu Posted on December 7th, 2018

Washington, DC, USA: Tthe Labor Department released a report Friday morning showing employment in the U.S. increased by much less than expected in the month of November.

The report said non-farm payroll employment rose by 155,000 jobs in November after surging up by a downwardly revised 237,000 jobs in October.

Economists had expected employment to climb by 198,000 jobs compared to the jump of 237,000 jobs originally reported for the previous month.

“However, markets shouldn’t be too disappointed as the fact that there aren’t enough workers was almost certainly a major factor,” said ING Chief International Economist James Knightley.

He added, “Indeed, the National Federation of Independent Businesses continues to report that the proportion of firms that can’t fill the vacancies remains at an all-time high.”

The Labor Department said the job growth in November reflected notable increases in employment in the health care, manufacturing, and transportation and warehousing sectors.

Meanwhile, the report said the unemployment rate in November remained unchanged for the second straight month at 3.7 percent, holding at its lowest level since hitting 3.5 percent in December of 1969.

The unemployment rate held steady as a 233,000 person gain in the household survey measure of employment more than offset a 133,000 person increase in the size of the labor force.

Average hourly employee earnings rose by $0.06 to $27.35 in November, reflecting a 3.1 percent increase compared to the same month a year ago. The annual rate of growth was unchanged from October.

“In terms of the outlook, decent economic momentum means there is little reason to expect a significant drop-off in demand for workers anytime soon,” Knightley said. “The key question is whether companies can actually find workers.”

“Given the scarcity of available labor, this suggests further upside for wages,” he added. “This will add to inflationary pressures in the US economy and ensure a December interest rate hike from the Fed.”

The employment report comes as soft October data on the housing market, business spending on equipment as well as a jump in the trade deficit to a 10-year high have heightened fears the economy is slowing. Growth forecasts for the fourth quarter are around a 2.7 percent annualized rate. The economy grew at a 3.5 percent pace in the third quarter.

In the wake of the employment report, U.S. financial markets continued to price in one rate hike from the Fed in 2019, compared with expectations for possibly two rate hikes a month earlier, according to CME Group’s FedWatch program.

The U.S. central bank is expected to increase borrowing costs on Dec. 18-19 for the fourth time this year.

The dollar fell against a basket of currencies on the data. U.S. Treasury prices initially rose before turning lower. U.S. stock index futures turned positive.

“The data fits with some slowing from trend … but is far from unhealthy for this point in the cycle,” said Alan Ruskin, global co-head of FX research at Deutsche Bank Securities. “It still allows the Fed to hike in December, but take a more cautious line thereafter.”

Fed Chairman Jerome Powell last month appeared to signal the central bank’s three-year tightening cycle was drawing to a close, saying its policy rate was now “just below” estimates of a level that neither cools nor boosts a healthy economy.

Minutes of the Fed’s November policy meeting published last week showed nearly all officials agreed another rate increase was “likely to be warranted fairly soon,” but also opened debate on when to pause further hikes.

A broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment, rose two-tenths of a percentage point to 7.6 percent.

Wage gains were moderate despite online retail giant Inc (AMZN.O) raising its minimum wage to $15 per hour for U.S. employees last month.

Job gains have averaged 170,000 per month over the past three months. The economy needs to create roughly 100,000 per month to keep up with growth in the working-age population. Employment growth could slow further in the months ahead.

The number of Americans applying for unemployment benefits is near eight-month highs. General Motors (GM.N) has announced plans to cut up to 15,000 jobs in North America next year, which will affect some assembly plants in the United States.

Retail employment increased by 18,200 jobs in November, likely boosted by an early Thanksgiving. Transportation and warehousing payrolls rose by 25,400 jobs, driven by seasonal hiring.

However, an unusually cold November slowed hiring at construction sites. Construction employment rose by only 5,000 jobs after companies added 24,000 workers to their payrolls in October. Manufacturing employment increased by 27,000 jobs last month after rising 26,000 in October.

Nonfarm Payroll (NFP) Report

The Nonfarm Payroll (NFP) report is released on  the first Friday of every month at 8:30 AM ET (Eastern Time) by the U.S. Bureau of Labor Statistics. NFP is a highly anticipated economic report which signals the strength of the US economy. It reveals the health of the jobs market, which filters down into inflation

It is closely analysed to predict Gross Domestic Product (GDP) growth and inflation rates and has the power to move global financial markets.

Economic indicators in the NFP report that markets and policy makers care about the most are Non-Farm Employment Change, Average Hourly Earnings and the Unemployment Rate:

Non-Farm Employment Change

Non-Farm Employment Change measures change in the number of employed people during the previous month, excluding the farming industry. Job creation is an important leading indicator of consumer spending, which accounts for a majority of overall economic activity

Average Hourly Earnings

The wages growth data, Average Hourly Earnings, measures change in the price businesses pay for labor, excluding the farming industry. It’s a leading indicator of consumer inflation – when businesses pay more for labor the higher costs are usually passed on to the consumer;

Unemployment Rate

Unemployment Rate measures the percentage of the total work force that is unemployed and actively seeking employment during the previous month.

Although it’s generally viewed as a lagging indicator, the number of unemployed people is an important signal of overall economic health because consumer spending is highly correlated with labor-market conditions.

Unemployment is also a major consideration for those steering the country’s monetary policy, especially the Federal Open Market Committee, FOMC.

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