U.S. Unemployment Levels Plunge to 9-year Low

Nonfarm payrolls increased by 178,000 jobs in November 2016

U.S. nonfarm payrolls increased by 178,000 jobs in November 2016, after growing 142,000 in October 2016, according to data released by the U.S. Department of Labor on Friday, December 02nd, 2016. The unemployment rate fell to 4.6% from 4.9%, marking its lowest level since August 2007, after more people found employment, but also because the labor force shrank as more people retired. Economists had forecasted payrolls rising by 175,000 in November 2016, with the unemployment rate expected to remain unchanged at 4.9%. Revisions subtracted a total of 2,000 jobs from payrolls in the previous two months. Both the payroll increase and fall in unemployment have strengthened the case and increased certainty for an interest rate hike by the Federal Reserve when it meets on December 13th-14th, 2016.

Source: Bureau of Labor, Bloomberg
Source: Bureau of Labor, Bloomberg

Participation rate, hourly wages slip

The participation rate, which shows the share of working-age people in the labor force, decreased to 62.7% in November 2016 from 62.8% in October 2016. The decrease is mainly due to retiring baby boomers. Economists believe that better employment prospects may draw more people into the workforce or limit unemployed people from dropping out.

During November 2016, the average hourly earnings fell by 0.1% to $25.89, the first decline since December 2014, after rising 0.4% in October 2016 and gaining 0.3% in September 2016. Hourly wages had climbed 2.5% over the 12 months ended November 2016, following a 2.8% Y-o-Y gain in October 2016. Average hourly wages fell for workers in mining, manufacturing, and utilities in November. The average work week for all workers was unchanged at 34.4 hours.

A steady job market signals employers were willing to keep hiring in the days before and after the November 08th, 2016 presidential election, and the lower jobless rate suggests pay and inflation will continue to trend upward.

Ongoing aging of labor force

Data released by the U.S. Department of Labor also showed that 4.52 million Americans who entered the labor force got jobs in November 2016, up 575,000 from October 2016. This marks the biggest monthly increase since about 1990. The reverse measure, people going from employed to being out of the workforce, rose by 296,000 to 4.68 million, in part reflecting retirees. In a sign of better job prospects, those classified as unemployed fell by 387,000 to 7.4 million. Nonetheless, the total number of working-age Americans not in the labor force increased by 446,000 to 95.1 million, signifying in part that the ongoing aging of the labor force will prevent a rise in participation in the coming months.

On the other hand, the underemployment rate, which includes part-time workers who would prefer a full-time position and people who want to work but have given up looking, fell 0.2% to 9.3%. This compares with 8.4% in November 2007, the month before the last recession began.

Companies add jobs at steady pace

Americans who are working part time though would rather have a full-time position fell 220,000 to 5.67 million, compared with 4.5 million just before the recession. However, companies continued to add jobs at a steady clip. Private employment, which excludes government agencies, rose by 156,000 after a 135,000 increase in October 2016. Trump’s plan to increase infrastructure spending and cut taxes could encourage companies to boost hiring and spur an even faster pace of economic growth over the coming years, analysts said. Fed Chair Janet Yellen has said the economy needs to create just under 100,000 jobs a month to keep up with growth in the working-age population.u3

Government payrolls rose by 22,000, with employment at state and local agencies up 19,000. However, the report showed differences across industries. Manufacturing shed another 4,000 jobs, making the fourth straight month of decline. Construction employment increased by 19,000 jobs after rising 14,000 in October 2016. Payrolls at factories fell by 4,000, after a 5,000 decline in October 2016. Retailers reduced payrolls by 8,300. However, this figure is expected to jump in the next two months as retailers are said to be hiring aggressively and earlier than usual this year for the Christmas season. Employment in leisure and hospitality rose by 29,000.

Professional and business services payrolls increased by 63,000 last month. Healthcare and social assistance employment increased by 34,700. Temporary-help jobs, a harbinger for future hiring, rose by 14,300.

Federal Reserve Chairperson Janet Yellen, who testified before the Joint Economic Committee of Congress in Washington D.C. on November 17th, 2016, has indicated the U.S. central bank is inching closer to rising interest rates as the labor market continues to strengthen and inflation inches higher. Yellen hinted that a rate hike could be implemented soon if economic data continue to progress toward the committee’s objectives. While the U.S. economy has made significant progress in 2016, inching closer towards the Fed’s objectives of maximum employment and price stability, it remains to be seen if Yellen implements course corrections sooner than expected.

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