The U.S. jobs report for November released Friday was met essentially with a yawn by Wall Street, causing relatively little immediate movement in stock prices. This was understandable.
The data's mixed signals suggest a short-term Goldilocks scenario (neither too hot nor too cold) for markets and Federal Reserve policies. The longer-term implications, however, are more complex.
Here is a summary of the the main messages of the report:
- The net addition of 178,000 jobs in November came very close to consensus expectations of 180,000. Together with the limited total revision of 2,000 to the previous two months’ readings, this confirms that the U.S. engine of employment creation remains healthy.
- Labor force participation remains a worry. The multi-decade low level of 62.8 percent in October declined by 0.1 percentage points in November. This contributed to an unanticipated fall in the unemployment rate to a headline-worthy 4.6 percent.
- Despite encouraging monthly job growth and a slightly smaller labor force, wage inflation remains muted: Average hourly earnings fell by 0.1 percent from October, bringing the annual growth rate down to 2.5 percent.
None of this should dissuade the Federal Reserve from hiking interest rates at the end of its Open Market Committee meeting Dec. 13-14. Only major economic and financial dislocation in Europe would alter what is now a virtual certainty that the U.S. will have its second policy rate increase in 10 years. But the hike that will materialize is likely to be packaged in dovish language.
What comes after remains more uncertain, particularly in light of the competing short-term signals from the November job report.
On the one hand, the developments in the unemployment and participation rates signal that there is very little slack left in the labor market. At the same time, the sluggish wage growth signals that some slack remains.
More broadly, however, the policy message is quite clear, and it adds to an already convincing case for an urgent hand-off from excessive reliance on central banks to a much more comprehensive response from other entities that require approval from Congress.
Assessed in a macro-economic context, the seemingly competing signals point to structural headwinds to a comprehensively healthy U.S. labor market, including skill mismatches, technology displacement and insufficient social mobility. These help explain why the average household still feels unsettled and insecure despite an impressive eight years of job creation under President Barack Obama.
And they point to the importance of complementing the pro-growth elements of President-elect Donald Trump’s agenda -- with its appropriate emphasis on tax reform, deregulation and infrastructure -- with policies aimed at modernizing education, reforming immigration and, encouraging better labor retooling and retraining, including through greater use of public-private partnerships.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Mohamed A. El-Erian is a Bloomberg View columnist. He is the chief economic adviser at Allianz SE and chairman of the President’s Global Development Council, and he was chief executive and co-chief investment officer of Pimco. His books include “The Only Game in Town: Central Banks, Instability and Avoiding the Next Collapse.”
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