November US Jobs Report singing the same tune

At the risk of sounding like a well-worn record, the November Jobs Report released by the US Labor Dept. on Friday is a repeat of prior months with its surge of jobs and employers scrambling to find the right talent, and willing to pay more to get them. 

The problem is that this pattern has steadied the ladder on inflation and increased the efforts of the Federal Reserve Bank to tamp down inflation with increased interest rates, and in what seems like an upward climb for them, it has replaced the earlier doom and gloom reports of recession.

Fridays numbers showed an increase of 263,000 non farm jobs, much higher than the expected 200,000 most economists predicted, and unemployment remains predictable at 3.7 percent, (which is also pushing up wages) against a background of an added jobs in 2022, according to The Hill, “more than it did in the economic boom years” up the Covid pandemic. In fact there have been “two open jobs for each unemployed American as recently as September according to Labor Dept. data.”

Increased earnings are another headache for the Fed, and Chairman Jerome Powell has noted as such, over the last few reports, and earnings increased by 0.6 percent in November and reached 5.1 percent for the past 12 months.

Backing into the detail, it was also reported, “The biggest news in this release is large upward revisions in wage growth for September and October and a big number for November,” Jason Furman, who chaired the White House Council of Economic Advisors (CEA) under former President Obama, said on Twitter.

“This is the second time this year we’ve seen [revisions] like this dashing the hopes that maybe nominal [wage] growth was cooling,” he continued.

Powell has noted “To be clear, strong wage growth is a good thing,” in remarks at The Brookings Institution, but cautioned, “But for wage growth to be sustainable, it needs to be consistent with 2 percent inflation, ”a mandate for the Fed, besides full employment.

He recently added this warning: they have “a long way to go” before inflation will fall back to pre-pandemic levels.

While the labor force participation rate has flatlined, it has also become a significant factor for employers to try and tease them from the sidelines with sign on bonuses, and such, but for many, especially women, lacking adequate childcare, they are forced to stay on those sidelines, along with those workers who took advantage of the Covid lockdown to evaluate their jobs, often moving away from jobs that require long hours on their feet, or in long distance transportation jobs.

There are some bright spots: leisure and hospitality with increases of 5.8 percent, and an increase with health care and hospitality. But, those were offset by losses in transportation and warehousing which dropped 15,000 jobs, and retail with a 30,000 job loss, totaling by 62,000 since August.

Retailers were also gearing up, by decreasing holiday hiring by some cautious employers, such as Macy’s and Walmart, fearing that customers were going to face higher prices, and spend less.

Money.com noted that, “Folks are expected to feel "sticker shock" when they go shopping for holiday gifts because prices have risen with inflation, says Andrew Flowers, a labor economist for recruitment advertising company Appcast. Companies are concerned Americans will react to these price hikes by spending less money, impacting their bottom lines and reducing the need for extra staff.

“Consumers are going to face a holiday season with higher prices,” Flowers says. “Inflation, and all the knock-off effects of inflation, are going to likely slow consumer spending this season, and whether it's retailers or warehouse employers, they are going to have to respond.”

There are others that see a brighter light with increased consumer spending, but they are in the minority, and with that spending as the main driver of the US economy, this is an area of concern.

Some sectors are shedding employees, said The Wall Street Journal, “with many growing nervous about the economic outlook,” as they see consumers transitioning from spending on goods to services; restaurants in particular. Some see a reduction than layoffs, noted Guy Berger, principal economist at LinkedIn.

Revisions to figures along with the household survey might show less hiring than payroll figures suggest, opined the Journal.

The reaction from the White House was jubilant, and President Biden said, “We continue to create jobs — lots of jobs,” he told reporters before signing a bill to avert a nationwide rail strike. “We’re in a situation where things are moving — moving in the right direction.”

October employment in US keeps pressure on inflation

Friday’s report from the US Labor Dept for October showed, still, the resilience of the American job market with 261,000 jobs gained, despite the predictions of economists of a number closer to 200,000 based on the September report that had a gain of just below 315,000, and these consistently high numbers have caused the Federal Reserve Bank to issue another increase, this time, once again, of 3.75 percentage points to fight inflation.

The hgh job numbers coupled with high wages, have allowed many Americans to increase demands for both goods and services, even with those wages buying power reduced by inflation.

Wage growth has been a factor since late summer and its growth has kept pressure on Inflation, as The Wall Street Journal reported In August:

“Wage gains help consumers spend money in the face of higher prices for restaurant meals, groceries and lodging. But many companies are having to pay more for labor at the same time that other business expenses are rising, including for transportation and logistics, said Omair Sharif, head of forecasting firm Inflation Insights LLC.”

Those prices are passed on to consumers, he added.

As most Americans have seen, at the gas pump, and at the supermarket, “wages haven’t kept pace with inflation. Private sector wages and salaries declined 3.1% in the second quarter from a year earlier, when accounting for inflation,” added the Journal.

With the current inflation, the highest in 40 years, showing no signs of abatement, the central bank has its hands full to meet its Congressional mandate of maximizing employment and stabilizing prices, the latter being the most difficult. 

“What I see in this is the imprint of beginning weakness,” said Diane Swonk, the chief economist at KPMG. “But it’s not enough to derail the Fed.”

While many have blamed President Biden for failure to act, the responsibility lies fully in the hands of the Reserve, under the direction of Jerome Powell, and its measures, interest rate hikes, are the key to lowering the temperature of inflation, and this report does show that there has been some effect, just not enough, and as we have noted before, the efforts at calibration has risks: too much, and there is the chance of a deep recession, with attendant job loss (mostly on the lower end) sending shockwaves across the economy, but letting inflation become the norm, then we have the problem of the 70s and 80s, where inflation became the norm, until Paul Volcker stepped in to intervene.

The unemployment rate of 3.7 percent, what we refer to as the marquee rate, is normally balanced with the household survey, but that is being temporarily suspended due to a format change.

Equally worrisome is the labor force participation rate which at 62.2 has barely moved, with many people, on the sidelines, and some, especially older workers fearful of the still present Covid virus, and those who have sought training, and education for another field; and, this has become especially true for service workers in restaurants, and hotels, to relieve themselves of long hours standing on their feet. 

In total 4.1 million have quit their jobs.

 

Still others, mostly women, who don’t have adequate child care (an area that the US lacks) have left the workforce to care for them.

One often unnoticed facet of the jobs  market deficit has been a shortfall in immigration, and this shortage “has become an economic problem for America,” according to The Economist, they noted that it is “harder for companies to find workers and threatens to do more damage to the economy, But whereas unauthorised border crossing are a perennial controversy, the drop in overall immigration has barely registered in Congress.”

Looking at fiscal year 2020/2021, we have the addition of only 247,000 people, continuing a pre pandemic trend but that was exacerbated in 2017, by the Trump administration restrictions “from several predominantly Muslim countries.”

This has been especially seen in restaurants and accommodation sectors, “which draws a quarter of its employees from the foreign born population, [and] could not fill about 15% of job openings last year.”

In short,  before then,“New immigrants accounted for nearly 70% of the growth in the American labour force in the 2010s.”

On a somewhat brighter note, for Black Americans, the unemployment rate has been 5.3, from 5.8 percent unemployment,reflecting some possible changes, although mostly unattributable to a specific reason.

The outlook despite inflationary fears is solid and “All in all, the job market is still hot,” said Daniel Zhao, an economist at the career site Glassdoor, to The New York Times, and “There’s still some cushion before we actually hit the ground.”

For Biden, the report, coming just before the midterm elections, offers some good news, but it’s a mixed bag as he faces a barrage of criticism from the right, who seeing the inflationary numbers, say it is  all his fault. Nevertheless he said in a statement from the White House on Friday, “While comments by Republican leadership sure seem to indicate they are rooting for a recession, the U.S. economy continues to grow and add jobs even as gas prices continue to come down.”

While the Fed may make smaller interest rate increases, say some, at its December meeting, Powell had to backtrack hopes, by noting that any actions in that area would depend on the data, and indeed most Reserve observers have noted, much like his predecessor, Janet Yellen, he is data dependent.

Also part of the mixed bag is the effect on consumers and while the slight dip in employment shows some effect as we have noted, but mortgage rates took a slight dip before Friday’s numbers were released, down from the prior week of 7.16, yet as  Bankers Association, reported that the 30 year rate had fallen to 7.06 percent on the average, “mortgage rates have still shot up to more than 7 percent, up from 4.2 percent in March and from their pandemic low point of 2.7 percent”, according to The Hill.

Since mortgage rates on a 30 year fixed “don’t move in tandem with the Fed’s benchmark rate, but instead track the yield on 10 year treasury bonds” with multiple factors interplaying, it bears watching for investors and buyers.

For the rental market there is some easing according to the Zumper National Report, with one bedroom apartments decreasing to 0.8 percent to a dollar figure of $1,491.00, and two bedrooms lowered by 0.7 percent, or $1,832, across most urban markets; and while, this smaller decrease in rentals offers some hope, most realtors don’t see this as a trend, but something to be watched.

And, watched, it will be.

The November report, once released, will have a great deal of attention by the market, as well as the government, and commercial interests, as it might be a bellwether for the end of the 4th quarter of 2022,  as well as a harbinger for January of 2023.