A Blowout U.S. Jobs Report

December 6, 2019
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Author: ThinkWhy Analyst

The U.S. Labor Market added 266,000 jobs last month, far exceeding economists’ forecasts. The pace of job growth has accelerated over the past three months with an average of 205,000 per month when compared to the year-to-date number of 180,000 jobs per month. The Federal Reserve continues to fuel the boom by providing liquidity to the economy and maintaining low interest rates. At this time, both trade negotiations and the political environment have not deterred hiring decisions.

The U.S. economy remains steady and the job market remains strong with:

  • Record low unemployment rate at 3.5 percent.
  • Healthy labor force participation at 63.2 percent.
  • Strong consumer spending drove the GDP growth to 2.1 percent.
  • 128,000 discouraged workers entered the labor force.
LaborIQ National Outlook - November 2019

ThinkWhy It Matters

With the low unemployment rate and continued job growth, companies are pressured to find the talent they need to grow. However, there are approximately 7-10 million individuals who are still available to enter the workforce. The U.S. labor market could still see growth if workers can be attracted back into the workforce. With higher wages, it is more likely these workers will enter the workforce, helping to sustain job growth.

Growth news is good for the economy. However, businesses will continue to see labor supply challenges due to continued record unemployment.

  • HR professionals can focus on attracting the 7-10 million eligible people into the workforce.
  • Create compelling comp packages to recruit skilled labor.
  • Focus training and recruiting efforts on planned upskilling to fill necessary openings.

National Summary

Monthly Job Gain and Annual Job Growth - November 2019

Positives

  • Over the past 12 months, average hourly earnings for all nonfarm employees have increased by 3.1 percent helping to drive up consumer spending. Average hourly earnings of production and non-supervisory employees grew by 3.7 percent.

  • Labor force participation rate held at 63.2 percent in November 2019.

  • The unemployment rate showed little changed at 3.5 percent in November 2019.

  • The change in total nonfarm payroll employment for September and October combined was revised up by 41,000 jobs.

  • Consumer spending is robust and should remain strong through the holiday season, driven largely by online sales.

  • Preliminary results for December’s Index of Consumer Sentiment is 99.2, up 2.5 percent from last month.

Challenges

  • Business investments including commercial real estate, infrastructure and machine buying decelerated indicating businesses are investing cautiously.

  • Uncertainty surrounding trade remains a downside risk to the labor market along with global slowdown.

  • Personal savings rate compared to September 2019 is down by 30 basis points to 7.8 percent; however, it is above the average for last year.

Industry Movement

Job Gain by Industry, SA - November 2019

Manufacturing makes up 8.4 percent of total employment. Gain within this industry was 54,000 jobs driven largely by GM employees returning to work.

Leisure and Hospitality make up 11.1 percent of total employment. Employment in Leisure and Hospitality continues to trend up with a gain of 45,000. Leisure and Hospitality has added 219,000 jobs over the last 4 months.

Professional and Business Services make up 14.2 percent of total employment. Gain within this industry was 38,000 jobs. Monthly job gains in the industry have averaged 37,500 jobs thus far in 2019, below the average monthly job gain of 48,700 for the same period in 2018. In the past 12 months, this industry has produced more than 417,000 jobs.

Within this industry, employment in Professional and Technical Services accounts for 81 percent of jobs which increased by 30,600 jobs.

Education and Health Care Services make up 16.1 percent of total employment. This industry saw the largest job gain with approximately 74,000 jobs this month. The majority of this industry’s job gain comes from Health Care and Social Assistance. In the past 12 months, this industry has produced more than 679,000 jobs.

Financial Activities make up 5.7 percent of total employment. Gain within this industry was 13,000 jobs, this month. Monthly job gains in the industry have averaged 10,900 jobs thus far in 2019, below the average monthly job gain of 11,200 in 2018. In the past 12 months, this industry has produced more than 116,000 jobs.

What to Expect

At this stage of the economic cycle, to see continued robust job growth is surprising. This indicates that the underlying health of the U.S. economy is strong. Although we’ve seen some deceleration from 2018, job gain in 2019 remains strong, albeit below the 2018 growth rate. The annual pace of job gains in November 2019 was 2.203 million or 1.5 percent.

Job Gain and Growth, NSA - November 2019

The Outlook

  • Long-term job growth is expected to slow meaningfully starting late 2020 and will reach the trough during the 3rd quarter of 2021.

  • Expect Professional Business and Technical Services and Health Care industries to continue to lead the job gain and growth in the U.S.

  • Mining and Logging and Trade, Transportation and Utilities sectors will continue to struggle to add jobs in the near term.

  • ThinkWhy expects very slight positive gain, but no job loss, with the trough (lowest point) projected in Q3 2021. After that, job gain will occur at an increasing rate, with the magnitude of growth expected to increase during 2022 and continue at a robust trajectory through 2024. After the low in Q3 2021, availability of labor is expected to loosen along with new workers joining the labor force.

  • Excluding the Great Recession, historically low unemployment rates will force the U.S. economy into a shortage of skilled labor conditions if those not in the labor force remain on the sidelines. This could create a hurdle to higher nominal job gain despite healthy U.S. economic fundamentals.