Non-Farm Payroll Strength: Unemployment Falls To 4.6%

Friday, December 2, 2016

The monthly non-farm payroll report for November was released this morning before the opening bell from the Bureau of Labor Statistics (BLS). Between private sector and government jobs, 178K in total were created for the month. The unemployment rate fell to 4.6%, which is the lowest in 9 1/2 years.

The average hourly rate fell 0.1% and the participation rate slipped to 62.7%. However, the U6 read — often referred to “real unemployment” — also fell to 9.3%, which is the lowest read since April 2008, or half a year prior to the Great Recession.

Revisions for previous months were notable but ultimately a wash: October’s initial read of 161K has been lowered to 147K, whereas September rose from 191K to 208K. This amounts to a cumulative loss of 2000 jobs over those two months. And November’s 178K falls roughly in the middle of those two previous month’s reads.

The private sector brought in 156K — quite a bit below ADP’s (NASDAQ:ADP) 216K read in November’s private sector employment on Wednesday. Often, initial reads for ADP and BLS reports are askew, but tend to tack toward one another in subsequent revisions.

One item of particular note beneath the headline: how could the U6 fall to levels not seen in more than 8 years yet the labor force participation rate also fall? This would suggest that baby boomers continuing to retire has accounted for this discrepancy — those who no longer consider themselves part of the workforce by choice and age (rather than frustration and/or lack of employable skill set) take themselves directly out of the U6 read.

That said, we are seeing a bit of a pullback in unemployed Americans re-entering the workforce, and this, if it continues, may be problematic. It also accounts for the attractive 4.6% unemployment headline, but if it suggests fewer people are hopeful about finding employment, we make continue to see a lag in labor market potential.

However, President-elect Trump promises to keep U.S. jobs at home (witness the Carrier narrative of this past week) and create millions of new ones once he takes control of the White House in January 2017. This may lead to labor shortage constraints if there are fewer skilled laborers (in Construction and elsewhere) than needed, but that’s a potential problem for another day.

Futures are down slightly ahead of the bell, and the tech-heavy Nasdaq is on pace to have its worst trading week since October of last year.

Mark Vickery
Senior Editor

Click here to follow this author>>