Jobs and the Fed
Were it not for the looming prospect of the first increase in the Federal Reserves’ influential federal funds target in more than nine years, the November jobs report could almost be considered status quo. At 211,000, net payroll employment growth came in roughly in line with expectations and just a bit below the 221,000 average of the prior six months. Private sector job gains of 197,000 were similarly just slightly short of the 210,000 average of the May to October period.
Unfortunately, the broadest indicators of overall employment and labor force participation remain stubbornly weak and unyielding even in the face of moderate but very persistent job growth. While the Fed certainly needs to consider the implications of a 5 percent unemployment rate for wage and price inflation, the backdrop of a nearly four-decade low in the labor force participation rate certainly should factor into perceptions of the degree of labor market slack, arguably higher than many estimate.
While job gains were fairly broad, the manufacturing sector continues to feel the burden of a troubled world economy. The U.S. factory sector experienced a job loss of 1,000 during November, its third month of employment contraction in the past four. Only the food and wood sectors registered reasonable job gains. While the economy can certainly handle the modestly tighter Fed policy that we are almost certainly going to get, I would urge the Fed to dampen expectations for the pace of tightening in order to stabilize what has been a 13-year high in the value of the dollar against the currencies of key U.S. trading partners, a manufacturing job killer.
Further, I hope that the Fed considers the dramatic improvement in the job situation for the least educated, those with less than a high school diploma. The unemployment rate for this cohort has fallen from 8.3 percent in July of this year to 6.9 percent for the most recent reading for November. Over the same period, the number unemployed has fallen impressively, from 901,000 to 753,000. Job gains in construction and in retail trade are the likely sources of this socially critical improvement in employment prospects for low education workers. Both sectors, however, are highly sensitive to financial conditions, another reason for the Fed to go slow as we approach “lift off.”