November Employment Report Argues for Above-Trend Growth With Little Inflation

The November Employment Report provides more evidence that economic growth is speeding up through Q419.  It suggests GDP Growth is already above trend.  Payrolls surged and the Unemployment Rate moved down.  Nevertheless, wage inflation still looks to be in check.  So, the Fed should remain on the sidelines for awhile.  This situation is a big positive for stocks and a moderate negative for longer-term Treasuries.

The +266k m/m surge in Nonfarm Payrolls, with upward revisions to October (to +156k  from +128k) and September (to +193k from +180k), puts the 3-month average at +205k -- the first time over 200k since January 2019.  (The 3-month average eliminates the boost by the 44k net returning strikers in November, as the latter is offset by the corresponding drag in October.)  The gains were mostly in services, particularly in health care (with a jump in ambulatory personnel).  Manufacturing jobs were up even excluding the 46k returning GM strikers.  Ex returning strikers, these jobs rose 8k.  Construction jobs rose only 1k, but this was after an upward-revised 14k in October (was 10k) -- they still show only a modest uptrend in this sector.  Retail jobs edged up 2k, with a 22k jump in general merchandise more than offsetting an 18k drop in apparel stores. 

The dip in the Unemployment Rate to 3.5% from 3.6% (rounding down after rounding up in October) argues for above-trend GDP Growth in Q419.  The October-November average is 3.5% versus 3.6% in Q319.  The Labor Force Participation Rate dipped to 63.2% from 63.3%, but remains in the higher range seen since August.

Total Hours Worked also argue for above-trend GDP Growth in Q419.  Their November level is 2.3% (annualized) above the Q319 average.  They suggest that the Atlanta Fed model's estimate of Q419 Real GDP Growth will be revised up from 1.5%.   The consensus of Street Economists also will likely be revised up.

Wage inflation remains subdued.  Average Hourly Earnings rose 0.2% m/m after an upward-revised 0.4% in October (was 0.2%).  The y/y slipped to 3.1% from an upward-revised 3.2% (was 3.0%) in October.