The employment report for November was somewhat soft, certainly inconsequential for the December rate decision but perhaps enough to warrant an adjustment to the characterization of the incoming labor market data in the December FOMC statement. Nonfarm payrolls increased 155K in November, and there were modest downward revisions to previous months totaling 13K. Average hourly earnings increased 0.2%, and the 12-month change remained at 3.1%, consistent with our forecast and the story that wage growth has picked up, but not to an extent representing overheating. The unemployment rate remained at 3.7%, as expected, and the participation rate remained at 62.9%.
The November payroll print was disappointing, but not terribly so, given the volatility in monthly payroll gains and the strength in payroll gains on average this year. The six-month average of payroll gains had been 216K, and in this report, it edged down to 195K. The latter figure is closer to what we had been expecting in the near term. The average workweek ticked down a tenth, though it remained in the narrow range that it has been in for some time. As a result, aggregate hours and earnings edged down in November, which on the margin has negative implications for household spending. While this report was somewhat soft, it doesn’t meaningfully change the outlook. Indeed, we have been expecting a moderation in both payroll gains and real GDP growth, and this report actually makes us a little more comfortable with that key feature of our forecast.
Though this is the only jobs report between the November and December FOMC meetings, it does raise the prospect of a change to the language in the FOMC statement about the labor market. The unemployment rate hasn’t changed, so the FOMC will likely revert to saying that it “stayed low.” Job gains have been described as “strong, on average, in recent months.” Perhaps the FOMC will consider a modest adjustment, for example, “solid” rather than “strong.” That would be more consistent with the slowdown in the three-month average to 170K, from 218K going into the November FOMC meeting. On the other hand, as noted above, the six-month average is still close to 200K. In any case, any adjustment would be made purely to more accurately describe the incoming data, not to signal concern. The phrase “the labor market has continued to strengthen” will certainly remain appropriate.