The ups and downs of the labor market

Quick takes:

• Robust November payrolls
• Other data shows labor slowing
• Consumers remain active
• Inflation still key
• CRE still holding up

Last week’s labor market data, the focal point of the economic releases, sent some conflicting signals. Depending upon which data we focus on, we can gain a different view of the market. Taken together, we get a more complete picture, one of a labor market that is slowing as the Fed raises rates to take excess demand out of the system. But slowing does not mean collapsing and the details matter.

Robust payroll data

Net job gains totaled roughly 263,000 in November. Although that represented the smallest gain since April 2021, it came in well above expectations. But, as we have previously discussed, net job gains have clearly slowed during 2022. And digging into the details, the composition of job gains seems less encouraging. Roughly half the jobs came from government and from leisure and hospitality, an industry that is still recovering. Another notable gain came from healthcare, a demographically driven category. But office-using categories such as business and professional services and financial activities eked out small gains. Meanwhile, retail lost jobs heading into the heart of the holiday shopping season. Though most of that occurred in department stores, the overall loss presents concerns. And revisions to prior months subtracted 23,000 jobs from payrolls. 

A slowing labor market
 

Other labor data less robust

At first blush, the average hourly earnings data looks healthy, coming in above expectations on a monthly and yearly basis. Yet wage growth has slowly declined since the first quarter of this year and continues to lag inflation. Average hours worked decreased slightly during November. The household survey, typically more volatile than the establishment survey, showed an employment loss while the labor force participation rate declined slightly during the month. Moreover, weekly unemployment claims continue to slowly tick higher, the number of open jobs continues to slowly decline and layoff announcements persist. Overall, the data shows a more nuanced picture of a labor market feeling stress. 

Consumers still active

Consumer confidence during November declined to its lowest level since July. Yet, in keeping with a theme over the last couple of years, that did not prevent consumers from going out and spending money. On both a nominal and real basis, spending fell in line with expectations during November. Consumers continue to utilize overall income growth (which exceeded expectations) and excess savings which they have not yet fully exhausted. This bodes relatively well now that we are in the heart of the holiday shopping season. Consumers should help close out another quarter of positive GDP growth, following the rebound in activity during the third quarter (revised slightly upward last week).

What we are watching this week

The ISM Services index for November should change little and remain above 50, signaling continued expansion in the sector. The producer price index (PPI) for November should show continued slowing inflation for both the headline and core indexes. Consumer sentiment should show a slight decline with high inflation continuing to weigh on consumers. 

Thought of the week

According to Adobe, consumers spent more than $9 billion online on Black Friday, a new record.