Wonky November Job's Report

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Wonky November Job's Report

Friday’s US Jobs Report was strong, with a net addition of 266,000 jobs added, but is likely an outlier caused by factors like the resolution of the GM strike and the customary noisiness of this data series. A few points:

  • The prior 3-month rolling average of 189,000 jobs added is a better assessment of the US labor market’s ability to generate incremental hiring.  That is enough to absorb population growth and keep unemployment low. 
  • The BLS reported that workers engaged in the motor vehicle/parts industry increased by 41,000 in November with GM workers returning to their assembly lines, but applying a conservative 1.5x multiplier puts the actual effect at 61,500.  If you’ve ever visited an auto plant you know how much its local economy depends on it being up and running. 
  • That makes the “real” November number something closer to 205,000, well within the fudge factor for the Employment Situation Report and in line with the recent averages.

We have a 3-part analysis we run every month on the Jobs Report, and when the headline numbers go wonky (like this month) it becomes all the more important to dig through the details:

#1: African American unemployment.  Academic work shows this cohort has been historically vulnerable to US labor market downturns, leading any upturn in general unemployment trends.  Here are November’s data/recent trends:

  • Last month’s unemployment rate here was 5.5%.  This is the same as the prior 3-month average and lower than 2019’s average reading of 6.1%.
  • Labor force participation rates remain stable at 62.3% in November, the same as the 2019-to-date average.

Upshot: that African American unemployment remains low and participation stable is a very positive sign about the US labor market.

#2: Unemployment for workers who finished their formal education with a high school degree.  Just over a quarter (25.3%) of the US workforce fits this description, and they represent an important leading cohort to watch in terms of both joblessness and labor force participation trends.  The latest data:

  • November’s unemployment rate for this group was 3.7%, essentially the same as the prior 3-month average (3.6%) and YTD average (3.7%).
  • Last month’s participation rate of 58.0% was slightly higher than the prior 3-month average of 57.6% and the YTD average of 57.8%.

Upshot: as with the prior point, the data here shows a still-robust US labor market. 

#3: Total unemployment as measured by the BLS’s U-6 metric, which includes workers with part time employment but preferring full-time and those marginally attached to the workforce:

  • By this more expansive definition, US unemployment was 6.9% last month rather than the 3.5% headline number.
  • Still, the trend here is positive.  Last month tied September 2019 as the lowest U-6 unemployment rate since December 2000 (also 6.9%).  The all time record low was 6.8% in October 2000. 

Upshot: you have to go back to the early 2000’s dot com bubble to find a lower U-6 rate than November 2019, another sign that overall US labor markets remain very strong. 

Final thought, related to what we discussed in the prior section: it is truly remarkable that American labor markets are ending 2019 on a high note at the same time as US companies are seeing noticeable margin compression.  No CEO seems to want to be the first to blink and structurally reduce headcount to boost profitability.  Why?

  • Perhaps they are worried about rehiring staff in a tight labor market if/when the US/global economy reaccelerates in 2020.
  • Or maybe the 24% increase in the average S&P 500’s company stock price in 2019 has curtailed their board’s scrutiny of existing cost structures. 

No matter the reason, November’s Jobs Report is one more indication that it’s not just capital markets that believe in the promise of earnings growth in 2020. Corporate America clearly buys that storyline as well. All the more reason that a US-China trade deal needs to happen soon, before companies decide to trim headcount.


November 2019 Jobs Report (links at the very bottom for historical data reviewed): https://www.bls.gov/news.release/empsit.nr0.htm