November non-farm payrolls – Bah Humbug!
I can hardly contain myself with excitement. US non-farm payroll data for November is out and the headlines are that the +321k MoM additions (+314k for the more relevant Private sector jobs) â€œsmashes forecastsâ€ (Guardian) and that â€œThe dollar has gone through the roofâ€ (City AM). With another month of unemployment at only 5.8% (try to ignore the participation rate), this should get the President hot-footing it from the golf course to make another speech on how well his policies are working!
So whatâ€™s all the excitement about?Â Â Yes, November has broken above the +300k level which nowadays is a pretty rare occurrence and on a MoM basis, the pickup in what should be higher added value areas such as Professional & Business Services, Construction and Goods Producing should auger well for incomes, albeit the evidence for that is unfortunately still rather tenuous with average weekly hours of 34.6hrs up by only +0.3% both MoM and YoY from Octoberâ€™s and last November’s 34.5hrs and with average hourly earnings of $24.66 per hour up +0.37% from October’s $24.57 and up by +2.1% YoY from last November’s $24.15 per hr.
Notwithstanding the brouhaha, the year on year performance remains disappointing given the $80bn pm of QE â€˜goosingâ€™ for most of the period. Over 12 months, private sector employment growth of +2.3% has only just exceeded overall population on a percentage basis, but has struggled to match the absolute increase. From the below table, one can also see a mixed profile by industry. Normally high value added areas such as Prof & Bus Serv have done well at +3.7%, but the normal premium end of this in Financial (at +1.4%) and Legal (not disclosed but flat), have been struggling, so it looks like recruitment has probably been at the lower end of the scale. Temporary Help meanwhile leads to pack with an +8.5% YoY increase, with Leisure, retail and Service industries providing the main absolute drivers to YoY growth â€“ more burger flipping and check-out jobs!
Whereâ€™s the growth driver?
With around two-thirds of economic growth coming from personal consumption, one has to wonder where this is going to come from. The 99% still look fairly maxed-out on their student loans, mortgages, auto loans etc and with property prices settling back the prospects for equity withdrawals and other forms of debt fuelled spending canâ€™t be that good. Recent oil price falls and lower â€˜gasâ€™ (petrol/diesel) prices have been used to talk up consumption stories, although the offsetting inflation from food and health seem to have been borne out in the grim â€˜Black Fridayâ€™ sales data (down over 10% YoY and not a function of online which seems to be flat).
While it may seem unseasonal, it is worth taking a quick look at the numbers. With the public sector ultimately funded by the private sector, private sector income growth is a crucial component to overall GDP prospects. A +2.3% YoY increase in private sector employment with an average earnings up only a miserable +2.1% pa (annualised, less on a rolling 12 month basis), means total private sector incomes must be up by under +4.8% or by +$0.238 tn to $5.24tn. Against the approx. +4.0%/+$0.683tn increase in overall US GDP to $17.56tn over the same period, private sector income growth only provided 35% of this increase. How much of the remaining growth (of $0.445tn) can be directly attributed to the near $1tn of QE during the period will no doubt be cause for debate, but with sub-inflation income growth, more wars and more deficits a few more disappointing retail announcements and markets will be clamouring for â€œmoar,moar moarâ€.