Hiring activity slowed in November, with nonfarm payrolls rising by 155k positions. The soft reading comes after a 237k gain in October (revised down from 250k). Combined with hurricane-weakened readings earlier in the fall, hiring has slowed to 195k jobs per month on average over the past six months.
The disappointing headline figure is somewhat mitigated by the unemployment rate holding at its cycle low of 3.7% for the third consecutive month. The overall labor force participation rate also held on to its October gain, and is at 62.9% — broadly unchanged over the past year.
Hiring activity slowed for both the goods and services sides of the economy. Areas of strength included healthcare (+32k), manufacturing (+27k) and transportation and warehousing (+25k). The slowdown in hiring was broad based.
The closely watched measure of wage growth – average hourly earnings – rose 0.2% on the month, as markets were expecting. Wages grew at a 3.1% pace over the past 12 months, the same as in October.
Key Implications
This number will not help to alter the pessimistic mood on financial markets this week, but a slower pace of hiring was bound to happen. As labor markets tighten, it gets tougher for employers to find people to hire. It is hard to pin slower hiring on any one idiosyncratic factor or industry. Hiring has averaged 195k new jobs per month over the past six months, which marks a slowdown from 215k-ish pace seen through much of 2018. But, it is still above the trend through most of 2017, and is actually not too bad given the mature phase of the economic cycle.
The Federal Reserve is not likely to put too much weight on a one-month moderation in hiring activity, and will likely focus on broader measures of labor market slack, like the unemployment rate or wage growth, which remained steady in November. We see a December rate hike as largely a done deal. However, it is undeniable that core inflation has lost momentum in recent months. While we expect price pressures to pick back up in the coming months, above-target inflation is less of a threat for the Fed. That underpins our expectation that Fed hikes will be more gradual in 2019, as the economy slows.
