This morning, the Bureau of Labor Statistics (BLS) released “The Employment Situation – November 2023.” To say analysts had been impatiently awaiting the report would be an understatement.
- First, the jobs report is always the most overanalyzed of all the overanalyzed economic data.
- Second, the Street is looking for final confirmation the Fed is done raising rates.
Better put, it is looking for confirmation the tightening cycle is over AND the economy isn’t completely falling apart.
As such, a decent, but not great, number this morning would have been sweet music. You know, modest job growth, but nothing to write home about either.
When the BLS announced the economy created 199K net, new payroll jobs in November, the kneejerk reaction was the number was too strong. While it was only 14K more than expected, investors had been hoping more for, say, a 140K type number.
This is one of those instances when headlines can be a little deceiving.
Don’t get me wrong. Close to 200K new jobs is pretty impressive for this point in the economic cycle, if not awesome. However, as I had suspected, the overall report wasn’t quite as robust as the folks on the television will make it out to be today.
- You see, we already knew a whole bunch of UAW strikers would be back on the job. The same for all of those folks in the entertainment industry.
- The numbers were roughly 30K and 17K respectively.
- Further, various governments added 49K new jobs last month.
- If you treat those 47K returning strikers as sort of a wash, it seems the private sector really only created 103K jobs.
Really, Norris, a wash? Sure. Perhaps October and September’s numbers weren’t really as bad as reported, and this one isn’t as robust. After all, those people had jobs. They simply weren’t showing up for them. Essentially, the jobs weren’t really lost in the past, and they really weren’t gained in the present.
But where was the real job growth in the private sector??
- When you factor out the returning autoworkers, the “goods-producing” segment of our economy shed 1K jobs in November.
- Similarly, if you ignore the 17.2K strikers getting back to work in the motion picture industry, the so-called “information” sector lost 7.2K jobs.
- For its part, “trade, transportation and utilities” cut 35K workers during the month.
- Financial services added a somewhat paltry 4K jobs,
- And “business and professional services” gave the boot to 9K .
Clearly, these aren’t great numbers.
- Conversely, “private education and health services” added a surprisingly high 99K jobs in November.
- Further, there was pretty solid growth in all the primary sub-sector.
- Also, and finally, “leisure and hospitality” employment increased by 40K, with the vast majority of these (38.3K) in the “food services and drinking places” sub-sector.
Frankly, the number of jobs the economy continues to create in that last sector baffles me. Do people really eat out that much? I suppose they do. Perhaps it is a generational thing, and people simply aren’t cooking at home as much.
To that end and come to think of it, I am not sure how much money I actually save by ‘eating in.’ The grocery doesn’t seem to be as cheap as it used to be.
With this all said, this morning’s jobs report was pretty good. However, it was nowhere near as good as the headlines would make it appear. Huge swaths of the economy didn’t create any jobs at all, in aggregate. Further, strikers returning to their jobs accounted for almost one-third of all private sector job creation.
But what does it all mean?
Frankly, unless the BLS has botched their seasonal adjustment factors, I suspect we will see a lower overall number in December. Of course, a lot can change over the next several weeks. However, the ancillary employment data just simply isn’t as strong as this report was.
When combined, the ISM Reports on Business suggest virtually no job growth. Further, the NFIB Small Business Hiring Plans Index has barely budged all year. Weekly Initial Jobless Claims seem to be finding a home in the 220K range, or thereabouts.
In essence, there is little in the crystal ball to suggest a surge in employment from this point. Likewise, there is nothing to indicate a sharp contraction either. As such, the path of resistance is to predict private sector job growth should be in the 115-130K range over the next several months. That is unless something dramatic happens.
Interestingly, that is about where it has been for the last 6 months, on average.
Frankly, I don’t think that sort of monthly job creation warrants any sort of special attention from the Federal Reserve. After all, in an economy our size, it simply isn’t all that significant. Nor is it enough to fully absorb everyone entering the workforce, or should be entering the workforce, each year.
As a result, this sort of modest monthly job growth will ultimately lead to a higher unemployment rate.
Huh? How can that be Norris?
Well, it is just the math. In 2024, some 3.8 million Americans (excluding immigration) will be turning 25. If we average, say, 125K jobs per month next year, we will create only 1.5 million. Voila.
After gapping down sharply when the report became public, stocks (futures at the time) have rebounded pretty nicely. As I type here at 9:25 am CST on 12/8/2023, the S&P 500 is up 32 basis points…not a bad day up until now.
Therefore, in the end, I submit the markets got the report they wanted. They just had to look past the headlines and do a little work. You know… overanalyze the report and all of that.
That is just what we/they do.
Oh yeah, one more thing, the Fed is done with this cycle.
Thank you for your continued support. As always, I hope this newsletter finds you and your family well. May your blessings outweigh your sorrows on this any every day. Also, please be sure to tune into our podcast, Trading Perspectives, which is available on every platform.
John Norris
Chief Economist
Please note, nothing in this newsletter should be considered or otherwise construed as an offer to buy or sell investment services or securities of any type. Any individual action you might take from reading this newsletter is at your own risk. My opinion, as those of our Investment Committee, is subject to change without notice. Finally, the opinions expressed herein are not necessarily those of the rest of the associates and/or shareholders of Oakworth Capital Bank or the official position of the company itself.