Economic Commentary

Executive summary

U.S. payrolls increased by 227,000 in November, which is one of the largest gains in the past nine months. However, many of the other details were mixed at best, including muted revisions to the prior two months and an uptick in the unemployment rate to 4.2%.

Additionally, more people want jobs, a signal that personal finances are tightening. For instance, the number of people looking for full-time work has steadily risen and is now at its highest level since late 2021. Similarly, the number of people wanting to work (new and re-entrants) has swelled to its highest since the fall of 2021.

Ultimately, we believe this report keeps the Federal Reserve (Fed) on track for another quarter point (0.25%) rate cut at the December 18^th meeting. That view is informed by a raft of evidence that labor market conditions are cooling. Nonetheless, there are several more data points being released in the next week– such as two of the key inflation gauges, retail sales, and manufacturing measures – that the Fed will also consider.

Payroll trends – Better but still cooling

Private payrolls increased by 194,000, rebounding after a falling in October, which was the first monthly decline since late 2020 in the aftermath of the pandemic. Government payrolls added 33,000, more than half of which were state & local educational positions. Service-providing industries hired 160,000 workers, while goods producers added 34,000.

Unfortunately, the revisions to September and October were much lighter than expected, especially considering Hurricanes Helene and Milton as well as a pair of machinists strikes at aircraft makers.

Alas, the six-month average of job growth has cooled to 143,000, slipping below the pre-COVID three-year average of 177,000.

A review of the major industry trends

Education/health services continues to be the biggest jobs creator. Nearly all of the gains in the industry group were within health care, which rebounded close to the 2024 average from a weaker October result. Private educational services hired 7,000, while government education added 17,100, bringing the total educational job gains in November to 24,000.

Non-educational government payrolls increased by 15,900, all of which were by state and local governments as federal payrolls shrank by 2,000.

Manufacturing added 22,000 in November, its best job growth in the past year. But the transportation equipment subsegment added 32,000, many of whom were returning from the pair of aircraft strikes, meaning other subsegments slashed payrolls in November.

Job growth within leisure & hospitality has been inconsistent month-to-month. Food service, which accounts for nearly three out of four in the segment, has only had one decent back-to-back month this year, which was back in the spring. Nevertheless, November was one of the “good” months, as food services hired 28,900 workers.

Staying with the inconsistent trend, temporary help services within the broader professional & business services group also had job gains in November. While adding 1,600 workers doesn’t seem remarkable, it was the second increase in the past three months – that hasn’t happened since early 2022. Temporary help has had an ugly streak of 28 declines in the past 32 months, or a loss of 534,900 positions over that span.

Conversely, retail trade shed workers for the fifth time in six months, down 62,000 during that period. The losses were sprinkled amongst most the categories, though nearly half were by general merchandise stores.

Most of the remaining major industry groups were close to their recent averages with the exceptions being construction, retail trade, and government.

Unemployment rate up but hours and wages held steady

The unemployment rate rose by 0.1% to 4.2%, though it was nearly up by 0.2% – the rate out to three decimals was 4.246%. Still, it remains roughly in-line with the pre-pandemic 3-year average of 4.0% and is low in a historical context; the average since 1948 is 5.7%.

The broader underemployment rate (U-6) also rose in November, ticking higher by 0.1% to 7.8%. For context, it was at 6.8% in December 2019.

The participation rate edged down to 62.5% after holding steady at 62.7% for three months. The number of workers aged 25-54, also known as prime-age workers, also edged down from the all-time high (going back to 1948) set in September. That age cohort represents 64.3% of all workers, roughly in-line with longer-term trends.

However, the number of people looking for full-time work hit 5.8 million in November, its highest level since late 2021. Similarly, the number of people wanting to work – these are new and re-entrants – swelled to 2.9 million, its highest since the fall of 2021. These figures are derived from the household survey, which is largely conducted by in-person canvassing.

Those figures conflict with the workforce figures, which dropped by 206,500 combined in October and November, that are from the establishment survey. Moreover, the total workforce has added just 159,000 in 2024 rather than the average of 1.7 million per year prior to COVID.

Hours worked—officially known as average weekly hours worked for all employees— rose to 34.3 in November from a downwardly revised 34.2. It remains roughly in-line with the pre-pandemic 10-year average. Within manufacturing, hours worked rose by 0.1 to 40.0, while overtime hours rose to 2.9.

Average hourly earnings rose 0.4% month over month, steady for a second month. That’s above the pre-pandemic 3-year average of 0.3%. The annual pace rose 4.0%, well above the pre-pandemic 3-year average of 3.0%, but cooler than the 4.5% pace during 2023.

Average hourly earnings for rank & file workers—officially known as production & nonsupervisory employees—rose 0.3% in November from 0.4% in October. The annual pace dipped to 3.9%, which is well-above its pre-pandemic rate of 3.0% but below the 5.0% pace during 2023. This is important since production & nonsupervisory employees are the bulk of all employees and where most of the dramatic post-pandemic wage gains have been concentrated.

Our take

As we noted several times in the review of the major industry trends, recent job growth has been inconsistent on a month-to-month basis for several industries. Furthermore, the muted revisions to September and October were a disappointment, though they were noisy months due to hurricanes and strikes.

When we zoom out in our review of 3-, 6-, 12-month averages for several of the key series within this report, including headline jobs growth, the major industry and subindustry trends, the unemployment rate, hours worked, and wages – all of them point to a broader cooling in labor market conditions.

Those are coupled with other indicators from job openings and hiring to private measures and industry surveys that reinforce the cooling trend. As does the surge in the number of people looking for work.

Those trends in and of themselves don’t suggest that something sinister is lurking, such as a recession, but clearly indicates that a slowing is occurring. We’ve been calling it a normalization but, regardless of the term used to describe the softness, it’s quite clear.

Aside from this report, most of the other incoming economic data – from retail sales and personal incomes to durable goods orders and the activity-based indicators – reflect a U.S. economy that’s doing just fine. It’s also been reinforced by weekly jobless claims and continuing claims, which have completely recovered in the months following the hurricanes.

This brings us to “how will the Fed react?” Barring a significantly hotter consumer price index, and to a lesser extent the wholesale price index, we believe the Fed will move forward with another quarter point (0.25%) rate cut at the December meeting.

Looking ahead to 2025, we expect that the Fed will adjust the pace of rate cuts, likely spacing additional rate cuts further apart, and assessing conditions along the way. However, that recalibration will depend on the strength of the data, which will be impacted by yet-to-be-determined tax and trade policy changes by the incoming Congress and presidential administration.