December jobs report: consistent with a “soft landing,” despite discordance in household data

 

 - by New Deal democrat

My focus remains on whether jobs gains are most consistent with a “soft landing,” i.e., no further deterioration, or whether deceleration is ongoing; and more specifically: 

• Whether there is further deceleration in jobs gains compared with the last 6 month average

• Whether the unemployment rate is neutral or decreasing; or whether there is further weakness; and
• Based on the leading relationship of the quits rate to average hourly earnings, weather YoY wage growth continues to decline slightly

The news on all three was good. The six month average of jobs gained has steadied, at 198,500 an increase from last month. The unemployment rate remained steady at 3.7%. Average hourly wages for nonsupervisory workers also remained steady at 4.3%. 

There is an important caveat about this month’s numbers: data from the household report’s seasonal adjustments was changed. This means that m/m changes in those metrics (which were otherwise very bad) need to be taken with a hefty dose of salt.

Here’s my in depth synopsis.

HEADLINES:

• 216,000 jobs added. On a YoY basis, jobs rounded to up 1.7%, down -0.1% from last month, and the lowest % gain since March 2021 
• Both October and November were revised downward, by -45,000 and -26,000 respectively, for a total of -71,000. This continued the steady drumbeat of downward revisions that we saw almost all last year. The 3 month moving average declined from 180,000 to a new post-pandmic low of 165,000.
• Private sector jobs increased 164,000. Government jobs increased by 52,000.
• The alternate, and more volatile measure in the household report, declined by -683,000. November, which was originally reported as a big rebound of 747,000, was also revised downward to 586,000. More importantly, the YoY% gain in this report - which avoids issues with seasonal adjustment - declined to +1.2%, the lowest since the pandemic lockdowns.
• The U3 unemployment rate remained at 3.7%. The civilian labor force, the denominator in the figure, declned by -676,000, while the numerator, the number of unemployed, rose a tiny 6,000.
• The U6 underemployment rate increased +0.1% to 7.1%, 0.6% above its low of December 2022.
• Further out on the spectrum, those who are not in the labor force but want a job now increased 328,000 to 5.671 million, vs. its post-pandemic low of 4.925 million set last March.

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.  These were sharply mixed:

• the average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, declined another -0.1 hours to 40.4, equal to its lows earlier this year and down -1.1 hours from its February 2022 peak of 41.5 hours.

• Manufacturing jobs rose 6,000.
• Within that sector, motor vehicle manufacturing jobs declined 2,100. 
• Construction jobs increased by 17,000.
• Residential construction jobs, which are even more leading, rose by 3,900. This is a new post-pandemic high.
• Goods jobs as a whole rose 22,000 to a new expansion high. These should decline before any recession occurs. They remain up 1.0% YoY, which is an average pace compared with most of the last 40 years, although the trend continues to be slight deceleration.

• Temporary jobs, which have generally been declining late 2022, declined again, by -33,300, and are down about -250,000 since their peak in March 2022.
• the number of people unemployed for 5 weeks or fewer rose 122,000 to 2,191,000.

Wages of non-managerial workers

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.10, or +0.3%, to $29.42, a YoY gain of +4.3%. This is unchanged from one month ago, but remains the lowest since June 2021.

Aggregate hours and wages: 

• the index of aggregate hours worked for non-managerial workers fell -0.1%, but is up 1.4% YoY, an improvement from October’s low of 1.0%.

•  the index of aggregate payrolls for non-managerial workers rose 0.2%, and is up 5.8% YoY. This is 0.3% above the YoY low set in October, and  2.7% above the most recent inflation rate, meaning average working class families have more buying power.

Other significant data:

• Leisure and hospitality jobs, which were the most hard-hit during the pandemic, rose another 40,000, which is still -163,000, or -0.9% below their pre-pandemic peak.
• Within the leisure and hospitality sector, food and drink establishments rose 22,100,. This sector has completely recovered from its pandemic downturn. 
• Professional and business employment increased 13,000. These tend to be well-paying jobs, This series has declined by -71,000 since last May, and is currently up only 0.6% YoY. This appears to be mainly fueled by retrenchment in tech jobs.
• The employment population ratio declined -0.3% to 60.1%, vs. 61.1% in February 2020.
• The Labor Force Participation Rate also declined -0.3% to 62.5%, vs. 63.4% in February 2020.

SUMMARY

This month’s report was complicated by annual revisions to seasonal adjustments in the household report. As a result, the generally very poor numbers in that portion of teh report need to be taken with lots of salt, although the YoY comparisons are not affected. Meanwhile, the establishment report, which gives us job gains and losses in various sectors, was generally positive and did not show any marked deceleration compared with earlier in 2023.

On the positive side, manufacturing, construction, and goods producing jobs generally continued to incrrease. These should all roll over before any recession were to begin. Residential construction in particular continued to rebound. Leisure and hospitality jobs continued to make up lost ground. Professional and business jobs staged a slight rebound. Nominal YoY wage growth was steady, and above inflation. Only the continued decline in temporary help jobs, and a decline in vehicle manufacturing jobs, were blemishes, with a more concerning drop in aggregate hours worked by nonsupervisory personnel.

For the record, the household report showed big declines in the number of employed, the labor force participation ratio, the employment population ratio, and those who are not employed but want a job now. The underemployment rate rose slightly, as did the level of short term unemployment. Only the headline unemployment rate, and the number of unemployed, remained steady.

Overall, to return to the theme with which I began this note, December’s employment situation was consistent with a “soft landing,” and did not show any signficant continued deceleration in the important metrics I have been monitoring.