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November jobs solid, good sign for incomes and growth - Wells Fargo

"November jobs were up 228,000 and up 170,000 on average over the last three months. Gains were broad-based in service, manufacturing and construction sectors while wage growth remained modest," Wells Fargo analysts pointed out. 

Key quotes

November Jobs at 228,000: Solid Sign for Income and Growth

Nonfarm payrolls rose 228,000 in November, with the three-month average at 170,000 jobs. Job gains are consistent with 2.5-3.0 percent economic growth in the first half of 2018, with steady consumer spending, better business investment and a likely FOMC December rate hike with another one in Q1-2018. The diffusion index indicates that 63 percent of industries added jobs in November compared to 52 percent a year ago. Jobs gains appeared in many sectors including business services, trade & transport as well as education & health (top graph). Federal and state & local government jobs have declined over the past three months. Over the past three months, aggregate hours worked are up 1.6 percent, consistent with continued growth in personal income, personal consumption and overall GDP growth.

Wage Growth: Real Wage Gains Over the Past Two Years?

Nominal average hourly earnings rose 0.2 percent in November, which was short of expectations. However, the average length of the workweek edged up to 34.5 hours. Along with the net jobs added, this suggests income derived from the labor market has strengthened at a 4.7 percent annualized rate the past three months (middle graph). The gradual rise in earnings over the past three months (2.5 percent year over year) signals higher incomes but also pressure on profits for firms that have modest top-line pricing power (especially in the goods sector). We expect wage growth to pick up a bit faster next year given unemployment headed towards sub-four percent. Longer term, the modest inflation readings and weak productivity numbers have limited the gains in nominal wage growth. Lackluster productivity growth in the current cycle has weighed on wage growth and will likely continue to hamper wage appreciation, even with low unemployment.

Structural Problems Persist: Drag on Growth

For any given unemployment rate (labor supply), the vacancy rate (job openings) remains wider than in the previous expansion (bottom graph), however the slack is gradually tightening. This Beveridge Curve signals a structural weakness in the labor market which is confirmed by several labor market survey indicators. Compared to a year ago, the unemployment rate for those without a high school education and with a high school diploma remains higher than the unemployment rate for those with some college. The mean duration of unemployment came in at 25.4 weeks in November, close to the average over the past year, while the labor force participation rate has remained nearly unchanged compared to a year ago. 

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