Solid Job Growth in November

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Nonfarm payroll employment was up 228,000 in November, beating expectations. Hiring was broad-based across industries. The recent bounce in hiring is partly a rebound from the disruption caused by hurricanes Harvey and Irma. Still, job growth at this rapid pace indicates that the economy is showing solid economic growth in the fourth quarter. Job growth averages 174,000 per month so far in 2017.

Figure 1: Businesses Continue to Hire

U.S. Employment – Nonfarm Payrolls; 1,000 Persons

Sources: Thomson Reuters Datastream, New York Life Investments, as of 12/8/17. Nonfarm payrolls include any job except for farm work, unincorporated self-employment, employment by private households, the military, and intelligence agencies.

Unemployment was unchanged at 4.1% – a 17-year low. However, if hiring continues at, or close to, November’s pace, unemployment should fall below 4%. This will raise the question of whether labor shortages will soon begin to stoke upward wage pressure in some sectors, and possibly wider inflation.

Wage Inflation Remains Stubbornly Low

Until now, wage inflation has remained stubbornly low, despite record job openings and surveys showing businesses increasingly finding it hard to fill open positions. This remained the case in November, when average hourly earnings rose only 0.2%, below expectations.

Over the last 12 months, average hourly earnings are up 2.5%, a slow pace of growth, given the underlying strength of the job market. Part of the explanation may be that the average wage number is held back by the retirement of Baby Boomers, who are replaced by younger workers that are paid less per hour. The Atlanta Fed’s Wage Tracker, which tracks wage growth for the median worker, shows a growth rate of 3.4% year-over-year in October, indicating that the median worker is experiencing better wage growth than what the headline average hourly wage number shows (Figure 2).

Figure 2: Wages Increased in November

Average Hourly Earnings vs. Median Wage Growth (12/07 – 11/17)

Sources: Thomson Reuters Datastream, New York Life Investments, as of 12/8/17. Average hourly earnings is calculated by the Bureau of Labor Statistics (BLS) and represents the average wage of all private employees. Median Wage growth is tracked by the Atlanta Fed.

With surveys showing businesses planning continued, solid hiring in the coming months (Figure 3), we expect the unemployment rate to decline further. Gradually, this will lead to more wage growth. For now, with hiring strong and wage inflation remaining low, it seems the job market is still “neither too hot, nor too cold, but just right.”

Figure 3: More Businesses Plan to Hire

NFIB: Hiring Plans vs. Jobs Hard to Fill (Survey Response: Percentage of Firms)

Sources: Thomson Reuters Datastream, New York Life Investments, as of 12/8/17. The NFIB Research Foundation Survey collects small business economic trends data using surveys from NFIB’s membership.

Opinions expressed are current opinions as of the date appearing in this material only. The information and opinions contained herein are for general information use only. MainStay Investments does not guarantee their accuracy or completeness, nor does MainStay Investments assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. There can be no guarantee that any projection, forecast, or opinion in these materials will be realized. Past performance is no guarantee of future results.

About Risk

All investments are subject to market risk, including possible loss of principal. There is no assurance that the investment objectives mentioned will be met. Diversification cannot assure a profit or protect against loss in a declining market.

This material is provided for educational purposes only and should not be construed as investment advice or an offer to sell or the solicitation of offers to buy any security. Opinions expressed herein are current opinions as of the date appearing in this material only.

The Atlanta Fed’s Wage Growth Tracker is a measure of the nominal wage growth of individuals. It is constructed using microdata from the Current Population Survey (CPS), and is the median percent change in the hourly wage of individuals observed 12 months apart.

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Poul Kristensen, CFA

Managing Director, Economist, and Portfolio Manager, New York Life Investment Management

Poul Kristensen, CFA is Managing Director, Economist and Portfolio Manager with New York Life Investment Management’s multi-asset strategic asset allocation & solutions (SAS) group

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