Financial Review

November 2017 Jobs Report

Sinclair Noe — December 8, 2017

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	Name	Symbol	Price USD	Market Cap	Volume (24h)	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
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	Monero	XMR	260.48	$4.26B	$200.65M	0.57%	0.0170735	+0.27%	+44.91%

The economy added 228,000 new jobs in November, beating expectations for about 200,000. The unemployment rate was unchanged at 4.1%, a 17-year low.

October job gains were revised lower, to 244,000 from 261,000. The increase in jobs in September was raised to 38,000 from 18,000. Hurricane damage skewed the past two employment reports, with the storms temporarily pushing hundreds of thousands of workers, particularly in the service sector, out of their jobs.

They largely flocked back in October, accounting for much of the month’s larger-than-usual job growth. Payrolls for September and October were revised up by a combined 3 thousand. Accounting for these revisions, job gains have averaged 170,000 over the last three months.

In the first 10 months of the Trump administration the economy has added 1.7 million jobs. In the last 10 months of the Obama administration, the economy added 1.85 million jobs. For the full year of 2016, the economy added 2.24 million jobs.

The United States has now added jobs for 86 consecutive months — a downward blip in September was later revised to show a small gain — and the unemployment rate is lower than it ever got during the last boom, which ended when the housing bubble burst.

Job growth has gradually slowed since 2014, when the American economy added close to three million jobs. But hiring remains remarkably steady. Employers are on track to add about two million jobs in 2017, a solid pace 8 years into an economic expansion.

What we haven’t seen is a substantial increase in wage growth. Worker pay rose 5 cents, or 0.2%, to an average of $26.55 an hour. The yearly increase in hourly pay moved up to 2.5% from 2.3%; this means that over the past year, average hourly earnings have risen by 64 cents; an improvement but still tepid wage growth.

The increase in average hourly earnings is barely enough to keep up with inflation. The average workweek for all employees increased by 0.1 hour to 34.5 hours in November. So, wages didn’t really go up, workers just worked a little longer.

The Labor Force Participation Rate was unchanged in November at 62.7%. This is the percentage of the working age population in the labor force. So, while the labor market is strong, it was not strong enough to pull workers off the sidelines. Or perhaps more significantly, companies were not offering enough in wages to pull workers off the sidelines.

The unemployment rate is approaching the level many economists consider “full employment” — the point at which essentially everyone who wants a job can find one. But the unemployment rate may not fully reflect the number of available workers. Many employers are starting to complain about the lack of available workers – but we still do not see a big move in wage increases.

If workers are so hard to find, why aren’t companies raising pay? The simple answer is that there are plenty of people who still want a job, they just might not be an employers’ ideal candidate. We need to train workers or pay up for trained workers.

The U-6 unemployment rate ticked up to 8% from 7.9% in October. The headline unemployment rate or U-3 is at 4.1%. The U-6 includes the unemployed plus people who are marginally attached to the labor force or working part time for economic reasons. Year-over-year, however, the 8% rate marks an improvement; in November 2016, the figure stood at 9%.

The health care sector added 30,000 jobs. This has been one of the fastest growing sectors in the labor market, but not all those jobs offer good wages. The home health aide industry, paying workers about $22,000 per year, will produce an estimated 425,600 positions by 2026.

Education gained 24,000. Professional and business services added 46,000.

Manufacturing gained 31,000 and a total of 189,000 jobs over the past 12 months. What’s more, manufacturers have now added just over 1 million new jobs since industry employment fell to a post-World War II low of 11.45 million in early 2010. These companies now employ 12.5 million Americans.

Construction added 24,000 in November and a total of 132,000 for the 12 months. Leisure and hospitality up 14,000. Transportation gained 10,000. Financial activities 8,000. And government added 7,000 new jobs.

Retail gained over 18,000 jobs. Many of the jobs in retail are seasonal. Retailers hired 595,000 workers in October and November, this is up from just over 509,000 for the same period last year, and about the same level as the previous four years. This is a good indicator for holiday shopping sales.

The holiday shopping season had a strong kick-off to the year. Sales got off to a great start on Black Friday weekend, and a massive shift toward online shopping has sent shippers scrambling to catch up. Packages are taking longer to arrive, and it might get worse.

One caveat: Gasoline prices usually don’t rise in November, but this time they did. That will make retail sales look even better, even though it puts a dent into the finances of consumers.

In a separate report today, the University of Michigan consumer sentiment index dipped to a 3-month low of 96.8. Consumers are by and large upbeat. They’re expecting higher income, and higher inflation as well.

So long as the job market is strong — and the latest report from the Labor Department was — the economy should be in pretty good shape. Consumer expectations fell, while consumers said the current situation improved. The economy seems good now, but we are concerned it will get worse.

Policymakers at the Federal Reserve have sent clear signals that they plan to raise the benchmark interest rate at their meeting next week. It would probably have taken a nearly catastrophic jobs report to change that — and today’s report was a little better than expected.

If the economy continues to add jobs at the current rate, it probably means more rate hikes in 2018 – and especially if wages start to rise more quickly — Fed officials could feel pressure to raise rates faster to head off inflation.

There are also political implications to be drawn from the labor market. At the heart of the Republican tax plan hurtling through Congress is an implicit promise that cutting corporate taxes will lift the middle class through higher wages and more jobs.

Speaker Paul Ryan, for example, said in a recent speech that “fixing the business side of our tax code is really all about helping families and workers,” adding that “cutting the corporate tax rate means more jobs here in the United States. It will foster increased competition, which will directly drive up wages for our workers.”

Yet few American companies have offered specific plans that support those promises. The lack of pledges to create jobs has not been lost on Trump’s top economic adviser, Gary Cohn. At a recent Wall Street Journal conference, Cohn asked his audience of chief executives how many of them would invest more if the tax cut were passed.

When only a few attendees raised their hands, Cohn asked: “Why aren’t the other hands up?”

A few companies say they plan to hire if tax cuts are passed, but most will be looking at share buybacks, increased dividends, or just hoarding the cash. This highlights a critical question over who would benefit the most from the tax bill: shareholders or workers?

The promise of the administration is that a tax overhaul will result in faster economic growth, which will lead to more investment and will eventually trickle down in the form of higher wages. And there is near unanimous consensus among economists that the tax bill will not grow the economy.

Wage growth has remained relatively sluggish over the past several years, even as corporate profits hover near all-time highs as a share of the economy, and the unemployment rate continues to fall to levels that economists normally associate with rapid increases in worker pay. Corporate profit rates have been historically high since 2007, while business investment has been historically low, and that hasn’t been enough to spark meaningful gains in wages.

Productivity growth remains low, inching up at an average annual rate of 1.2 percent over the last eight years, compared with its historic rate of 2.1 percent from 1974 to 2017. There is a strong chance that business could invest in equipment to improve productivity, rather than investing in workers’ wages.

It is possible that a tax cut could increase wages even if companies do not intend it to, but that could just be because there is less slack in the labor market, where unemployment is hovering just above 4 percent.

Frankly it’s time to give up the charade that eliminating estate taxes for Ivanka Trump and her brothers or creating a lower “pass-through” rate for President Trump’s maze of LLC’s is going to boost the economy in the way we now need. We have jobs; we need higher skilled workers and other elements to make workers richer.

What would spur productivity and in turn raise wages? Invest in infrastructure, move capable workers to where the jobs are, get the best and the brightest people from around the world to immigrate here, invest in R & D, improve schools (for all the education “reform,” American students still trail their foreign peers in math) and create a path for teaching high-skill trades outside the four-year college system.