December 06, 2024
The November jobs report gave a somewhat mixed picture of the labor market. On the positive side, we saw robust job growth in the establishment survey with an increase of 227,000 jobs, up sharply from a weak 36,000 gain reported (revised up from 12,000) for October. On the downside, the unemployment rate edged higher to 4.2 percent.
The November number and October number really have to be taken together. The October jobs data was depressed both by the effect of the Boeing strike and also the two hurricanes that had just hit the Southeast. During the reference period for the October report, many businesses were still closed, and reconstruction efforts had not really kicked off, so we were seeing the maximum jobs impact.
The end of the Boeing strike shows up with an increase of 32,000 in manufacturing of transportation equipment. In other sectors, we saw a jump in hotel and restaurant employment of 34,600 in November after an increase of just 1,200 in October. In total, job gains over the last three months have averaged a solid 173,000.
Wage Growth Remains Healthy, as Does Productivity
The annualized rate of wage growth over the last three months was 4.5 percent, up somewhat from the year-over-year rate of 4.0 percent. This would translate into a healthy pace of real wage growth. The overall Consumer Price Index increased 2.6 percent over the last year. If we pull out inflation for owner equivalent rent (the rent homeowners would pay to rent their home), inflation would have been just 1.2 percent. This means wages are outpacing prices by more than 2.5 percentage points.
A 4.0 percent rate is roughly 0.5 percentage points faster than the rate we saw in the last two years before the pandemic. This pace would be consistent with the Fed’s 2.0 percent inflation target if we can sustain productivity growth at or above 2.0 percent.
The hours data for November is encouraging on this score. The index of aggregate weekly hours for November increased just 0.4 percent from October, but the revised October showed a drop of 0.3 percent. With self-employment down so far for the quarter, the economy is on a pace for hours to increase at less than a 1.0 percent rate for the quarter. With GDP likely to increase by close to 3.0 percent for the quarter, we should again be close to a 2.0 percent rate of productivity growth.
Rising Unemployment Is a Cause for Concern
While a 4.2 percent unemployment rate is still low by historical standards, there is some evidence of a weakening labor market in the household data. The unemployment rate for Black workers jumped 0.7 pp to 6.4 percent. The unemployment for Black women rose an even sharper 1.1 pp to 6.0 percent, the highest since February 2022. These rises in unemployment were associated with drops in labor force participation, with the rate for Black people as a whole dropping from 62.9 percent to 62.4 percent, and for Black women from 62.6 percent to 62.3 percent.
These data are highly erratic, but still these are large jumps and likely reflect some real increase and not just noise. Black workers and others facing discrimination in the labor market benefit disproportionately in a strong labor market and suffer most in a weak one.
Immigration and the Labor Market
Construction employment did not bounce back from October, with job growth of 10,000 after an increase of just 2,000 in October. Jobs in the sector had increased at the rate of 20,000 a month in the year from September 2023 to September 2024.
While many factors could explain this weakness, undocumented workers do make up a large portion of the workforce in construction. It is possible that their absence due to tighter restrictions and also fear of deportation with the new administration could be slowing job growth.
It is important to remember that without the surge in immigration following the end of pandemic restrictions we would have seen far lower rates of job creation the last three years. Before the pandemic the Congressional Budget Office projected that we would be creating just 20,000 jobs a month in 2024.
Immigration slowed sharply at the start of the summer. We likely are seeing part of the effect of this slowing by now. The Trump administration’s commitment to mass deportation may also be causing some migrant workers to leave jobs.
Food processing, another sector with a large share of migrant workers, has lost 2,300 jobs since September. It had added 20,700 jobs in the year prior to September. In the household survey, the year-over-year gain in employment for non-native workers was just 401,000 in November. These data are hugely erratic, but the gain had been over 1 million the prior five months. The November year-over-year figure is the lowest since March of 2021.
Health Care Again Leads Job Growth
The health care sector added 53,600 jobs, making it again the leading job gainer. The government sector added 35,000 jobs, all at the state and local level, as the federal government decreased employment by 2,000. The financial sector added 17,000 jobs, far above its average of just 3,300 a month in the year to October. The professional and technical services sector added 15,900 jobs, in line with its average for the last year.
Retail reported a job loss of 28,000 driven largely by a decline in employment of 15,000 in general merchandise stores. This likely reflects a change in holiday hiring patterns. There was a similar drop reported in November of last year, which was followed by large increases in January and February.
Generally Positive Picture as We End the Year
The strong job growth in this report, coupled with the upward revisions for the prior two months, indicate the economy is still creating jobs at a very healthy pace. The continuing wage growth also means that workers’ purchasing power is growing and should support steady growth in consumption, which is more than 70 percent of GDP. And it looks like the rapid pace of productivity growth seen in the recovery to date will continue through this quarter.
However, the rise in unemployment in the household survey is discouraging. Again, the current rate is still quite low by historical standards but if it does rise more, the most disadvantaged workers will be hit hard. As noted, we already have seen a sharp rise in the unemployment rate for Black workers. The unemployment rate for workers with just a high school degree also jumped, hitting 4.6 percent, the same rate as in January of 2022.
With the new administration and a sharp change in immigration policy likely in the works, it is difficult to make predictions about where the labor market is going. For now, it still looks very good.
