Even as the jobs market cools a bit, the outlook remains stellar

We have become so accustomed to tremendously robust monthly employment reports that when we get one like November’s, it seems like a big disappointment. The fact that Friday’s data feels surprisingly soft is a testament to how strong the labor market has been for years on end.

The economy added 155,000 jobs last month, a solid number but well below expectations and noticeably short of the year-to-date average of 206,000. However, most of the industries that posted weak results are not those that financial markets are worried about.

For example, the construction industry only managed to add 5,000 jobs, but the housing sector posted a trend-like gain of 8,000 while the more vibrant nonresidential construction industry shed positions in November for the first time in over a year.


In fact, the laundry list of sectors that disappointed in November, mining, private educational workers, motion picture industry and hotels, seems more indicative of random noise than economic softening.

Meanwhile, as has been widely reported, firms involved in the Christmas retail season loaded up in November, with general merchandise stores adding 39,000 jobs and the category that includes package delivery drivers increasing by 10,000.

In short, the overall jobs figure was mediocre by recent standards but still consistent with solid economic growth, and there is little indication that the trend is cooling in a sustained manner.

Average hourly earnings also fell somewhat short of expectations in November, rising by only 0.2 percent on the month. Still, the year-over-year advance held steady at 3.1 percent, matching the fastest annual gain since 2009.

Interestingly, the narrower measure of wages, which includes only production and nonsupervisory workers (i.e. mostly blue-collar employees), jumped by 0.3 percent for the third straight month and has risen at nearly a 4-percent pace over the past four months.

This suggests that workers in the lower half or two-thirds of the pay scale are reaping the bulk of the benefits from the tight labor market in recent months while salaried employees have seen more restrained pay hikes. This is what typically happens when labor markets get extraordinarily tight.


Lower-skilled workers tend to be the last to enjoy the fruits of a strong economy, but they really make hay when the economy is firing on all cylinders, as it has been over the past year or so.

The brighter aspect of the November employment report was the household survey results, from which the unemployment rate is derived. A significant number of potential workers entered the labor force for a third straight month, responding to firms’ increasingly aggressive efforts to fill the record number of job openings.

The good news is that these new entrants to the labor force are finding jobs. The household survey gauge of employment has surged by about 1.25 million in just the last three months, and the percentage of the working-age population that is employed inched up to its highest level since 2008.

On a rounded basis, the unemployment rate held steady at 3.7 percent for a third straight month, but on an unrounded basis, it inched down from 3.74 percent to 3.67 percent, the lowest reading since 1969.

The jobless rate has fallen by half a percentage point or more in seven of the past eight years, an incredible feat considering that economists worried that the economy had suffered permanent damage in the wake of the 2008-09 recession.

We are on pace to see a drop of close to half a percentage point again in 2018, and if the trend were to continue next year, the unemployment rate would slide to around 3.25 percent, which would be the lowest level since the Korean War in the early 1950s and the lowest in peacetime in almost 100 years.

So, even if the labor market moderates a bit, as it did in November, the outlook remains stellar.

Stephen Stanley is the chief economist at Amherst Pierpont Securities and a frequent guest on CNBC and Bloomberg Television.