November jobs report: the expected monthly rebound masks deeper declining trends

 

 - by New Deal democrat



To understand this month’s jobs report, let’s start with last month’s, where I wrote that “there were some signs of real weakness in this report that do not appear to be hurricane-related. But Hurricane Milton, as well as the strike, had an impact, so take this report with a gigantic helping of salt.”

So everyone, including me, expected a big rebound this month, and we got one. As I’ll get into below, though, it is especially important to average the two months together to get a better idea of the trend.

Below is my in depth synopsis.

HEADLINES:

• 227,000 jobs added. Private sector jobs increased 194,000. Government jobs increased by 33,000. the two month average was an increase of +131,500.
• The pattern of downward revisions to the last months reversed this month.. September was revised upward by +32,000, and October by +24,000, for a net increase of +56,000.
• The alternate, and more volatile measure in the household report, showed a decrease of -355,000 jobs. On a YoY basis, this series has *declined* by -725,000 jobs, which remains consistent with recession, as it has for months. This is the second time in three months this measure has shown a YoY decline.
• The U3 unemployment rate rose 0.1% to 4.2%. Since the three month average is 4.167% vs. a low of 3.7% for the three month average in the past 12 months, or an increase of over 0.4%, this means the “Sahm rule” is back in effect.
• The U6 underemployment rate also rose 0.1% to 7.8%, 1.4% above its low of December 2022.
• Further out on the spectrum, those who are not in the labor force but want a job now declined -180,000 to 5.486 million, vs. its post-pandemic low of 4.925 million in early 2023.

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and help us gauge how much the post-pandemic employment boom is shading towards a downturn. This month they were again mixed, but tilted towards negative:

• the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, rose 0.1 hour to 40.7 hours. This remains down -0.8 hours from its February 2022 peak of 41.5 hours, but on the other hand is only -0.1 hour below its 18 month high.

• Manufacturing jobs rose 22,000. But this only reversed half of the -44,000 strike-related decline last month, so the two month average is negative.
• Within that sector, motor vehicle manufacturing jobs declined -400. The two month average is -3,200. 
• Truck driving increased 2,900. The two month average is +950.
• Construction jobs increased another 10,000. The two month average is +9,000.
• Residential construction jobs, which are even more leading, rose by 1,400 to another new post-pandemic high.
• Goods producing jobs as a whole rose 34,000, but because they declined -42,000 last month, the two month average is -4,000. This is especially important, because these typically decline before any recession occurs. As I wrote last month, “in the absence of special factors this would be a serious red flag for oncoming recession.” Thus the net two month decline is worth at least a yellow flag.

• Temporary jobs, which have generally been declining since late 2022, rose by 16,000, although the two month average is -850. These are down over -550,000 since their peak in March 2022. This appears to be not just cyclical, but a secular change in trend.
• the number of people unemployed for 5 weeks or fewer rose 97,000 to 2,209,000. The two month average is an increase of +32,500.

Wages of non-managerial workers

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.09, or +0.3%, to $30.57, for a YoY gain of +3.9%. Their post pandemic peak of 7.0% in March 2022. This is equal to their recent low in July. Nevertheless, and importantly, this continues to be significantly higher than the 2.6% YoY inflation rate as of last month.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers rose 0.1%, vs. last month’s revised unchanged level. This measure remains up 1.4% YoY, which is higher than its trend for the past 12+ months.

• The index of aggregate payrolls for non-managerial workers was rose 0.4%, and is up 5.3% YoY. This increase may be just noise, but at least for this month it reverses the slow deceleration since the end of the pandemic lockdowns. With the latest YoY consumer inflation reading of 2.6%, this remains powerful evidence that average working families have continued to see gains in “real” spending money.

Other significant data:

• Professional and business employment rose 26,000, but the two month average is a decline of -10,500. These tend to be well-paying jobs. Although the YoY comparison therefore improved this month, they are only higher YoY by 0.4% - a very low increase that has *only* happened in the past 80+ years immediately before, during, or after recessions. 
• The employment population ratio declined another -0.2% to 59.8%, after a -0.2% decline last month, vs. 61.1% in February 2020.
• The Labor Force Participation Rate declined another -0.1% to 62.5%, after a -0.1% decline last month, vs. 63.4% in February 2020. The prime 25-54 age  participation rate declined -0.3% to 83.5%, vs. 84.0% in July, which was the highest rate during the entire history of this series except for the late 1990s tech boom.

SUMMARY

On a month over month basis, this report was very positive, as with the exception of the labor force participation rate and the employment population ratio, everything rebounded - as expected.

That’s why looking at the average of the past two months is so important. And there, the news isn’t so good at all. In addition to upticks in the unemployment and underemployment rates, not only did manufacturing, motor vehicle production, professional and business jobs, and temporary help jobs decline further, but for the first time, so did goods-producing jobs as a whole. For the last four months, there has been less than a 0.1% gain, and only a 0.2% gain for the last eight months. Even since the accession of China to regular trading status, such meager gains have signaled at least weakness if not outright recession.

There certainly were bright spots, as construction, including residential construction jobs, continued to plow ahead. The downturn in trucking jobs reversed. Those who want a job now but have not applied for one also decreased. And aggregate hours worked and aggregate payrolls for nonsupervisory workers both increased. This suggests that consumer spending will continue a net positive in the next few months.

Last month I closed with “I would take 60% of this month’s decline as temporary, but 40% real.” This month’s report is confirmatory of that hypothesis, with the two month average gain being 131,500, and the three month average 173,000. In other words, the trend of deceleration in the jobs market is continuing without abatement. If this trend continues for another 12-15 months, it will be negative - in other words, signaling a recession.