November Employment Report Doesn't Change Story for the Fed

The November Employment Report does not change the story for the Fed.  Economic growth still looks to be above trend in Q418, while inflation remains contained.  The possibility that November is the start of a more significant slowdown cannot be ruled out.  A December rate hike still looks highly likely, while forward guidance should reflect some caution -- as yesterday's WSJ report hinted.

Although Nonfarm Payrolls slowed to +155k m/m in November, the pace is still above trend.  This can be seen in the Unemployment Rate edging down to 3.67% from 3.74% in October (both rounded to 3.7% in the headlines).   To be sure, there was some softening in the "margins" of the labor market, so the broader measure, U-6, rebounded to 7.6% from 7.4% in October.  It had been bouncing between 7.4% and 7.5% in the prior few months.

In addition to a slowdown in Payrolls, the Average Workweek slipped to 34.4 hours from a prior trend of 34.5 hours.  As a result, Total Hours worked fell 0.2% m/m in November.   Nevertheless, THW look to be up 1.3-1.5% (q/q, saar) in Q418 (depending on whether THW is steady or rebounds in December) -- stronger than the +1.1% in Q318.

The 0.2% m/m in Average Hourly Earnings matched the average pace seen over the first 10 months of the year.   On an unrounded basis, it was actually slightly below this January-October pace (0.22% versus 0.24%).  AHE is the narrowest of the major measures of labor costs.  The broadest measure -- Compensation/Hour -- was softer over the first 3 quarters of the year.