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America’s Job Market Gets Tighter, as Wage Drop Seen as Blip

Dec. 2, 2016
“We’re at full employment,” said Michael Gapen, chief U.S. economist at Barclays. “The slack is gone and we’re now creating scarcity.” 

Almost any way you slice it, things are getting tighter in the U.S. labor market, which should translate to faster pay gains for American workers in 2017.

Employers in the U.S. stepped up hiring in November, adding 178,000 workers to payrolls, and the jobless rate unexpectedly tumbled 0.3 percentage point to a nine-year low of 4.6%, a Labor Department report showed Friday. The number of involuntary part-time workers dropped to an eight-year low and the so-called underemployment rate was the smallest since April 2008.

While hourly wages declined for the first time since the end of 2014, the employment gauges show a tighter job market that economists say risks igniting inflationary pressures through accelerating wage growth, which could be further stoked by potential stimulus after President-elect Donald Trump takes office in January. For Federal Reserve policy makers, the report adds to signs of economic progress, leaving central bankers squarely on track to raise their benchmark interest rate in less than two weeks.

“We’re at full employment,” said Michael Gapen, chief U.S. economist at Barclays Plc in New York. “The slack is gone and we’re now creating scarcity.” This is “consistent with modestly firming wage growth.”

Average hourly earnings unexpectedly fell 0.1% in November, pushing the year-over-year growth rate down to 2.5%, though the disappointing data on worker pay may be a timing issue. The Labor Department surveys employers for the week that includes the 12th of the month. The survey week last month ended on Saturday, Nov. 12. Those getting paychecks bi-monthly would normally not be paid until the 15th, which has tended to distort the wage readings when the survey week comes so early.

Also, pay for utility workers fell 1.8% in November, the biggest drop since 2008, reflecting a pullback after repair work following Hurricane Matthew drove up wages in October.

“Wages can be volatile month to month,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “I’d tend to put a little more weight on the unemployment rate when thinking about future developments and wage inflation.”

See Janet Yellen’s dashboard of the U.S. labor market here.

The decline in the jobless rate reflected both a drop in the size of the labor force and a decrease in the number of unemployed, according to the agency’s survey of households. 

The participation rate, which shows the share of working-age people in the labor force and was one measure highlighted by Trump leading up to the Nov. 8 election, decreased to 62.7% last month from 62.8%. It has been hovering near the lowest level since 1978, with the longer-term slide mainly due to retiring baby boomers. Some of that may be offset as better employment prospects draw more people into the workforce or limit unemployed Americans from giving up and dropping out.

The decline in participation “further demonstrates an urgent need” for Trump’s economic plan, Trump economic adviser Peter Navarro said in an e-mailed statement on Friday, also highlighting November’s drop in manufacturing jobs. He didn’t mention the overall payrolls figure or the unemployment rate.

Aging Americans

Gapen, who previously worked at the Fed, said that the “ongoing aging of the labor force will prevent a rise in participation.”

The underemployment rate--which includes part-time workers who’d prefer a full-time position and people who want to work but have given up looking--fell 0.2 percentage point to 9.3. The number of Americans working part-time for economic reasons fell 220,000 in November to 5.7 million.

Data on labor-force flows showed new entrants were extremely successful in finding work. The number of Americans finding gainful employment after being out of the labor force rose to 4.52 million, a jump of 575,000 that was the most since records began in 1990.

Companies continue to add jobs at a steady clip. Private employment, which excludes government agencies, climbed 156,000 after a 135,000 increase the prior month, with business services, restaurants and health-care providers accounting for most of the growth. Government payrolls rose by 22,000, most of the gain led by state and local agencies.

The data showed differences across industries. Service providers, which include restaurants, business services and health-care, are typically less exposed to headwinds--such as tepid overseas markets--than manufacturers. Payrolls at factories fell by 4,000 in November, the fourth straight decrease.

Even so, the employment report “encourages the Fed to hike in December--if it needed more encouragement,” Mohamed A. El-Erian, chief economic adviser at Allianz SE and a columnist for Bloomberg View, said on Bloomberg Television. “But importantly, it doesn’t make the Fed change its mind as yet about the path of future rates.”

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