Strongest Wage Gains Since 2009

Payroll employment is expected increase by 185,000 in November after surging 250,000 in October with a catch-up in employment after hurricane disruptions. We expect the unemployment rate to hold at 3.7% as more people continue to rejoin the labor force. The rebound in the participation of prime-aged women (25-54 year-olds) has been particularly strong over the last year but is still below previous highs. Our forecast shows average hourly earnings up 0.2% for November, which would translate to a 3.1% gain on a year-over-year basis. That would match October for the strongest wage gains since Spring 2009 when wages were actually decelerating.

We expect to see November job gains concentrated in the manufacturing sector, excluding vehicles, and health care. GM and Ford are cutting back on production of cars, which are lagging in sales relative to SUVs. The retail sector will post some gains in employment. Many retailers, however, say they are adding more hours than workers because they can’t find seasonal help in this tight labor market.

Leisure and hospitality employment will pick up with record holiday travel. A surge in the number of paychecks, coupled with actual wage gains, is spurring discretionary spending on travel, accommodation and full-service restaurants. The one sticking point is tight labor markets and an inability to find workers, most notably for low-wage jobs in the lodging and food sectors.

[I have been to more than one hotel where it was obvious that the maids are overworked and in short supply. I rarely complain about bad service in a good economy because it usually means people are finally making up for hours lost when the economy was weaker. It is a sign that workers who were once overlooked finally have a shot at getting hired.]

Construction employment is expected to be a weak spot, given the drop in private sector construction during the last three months. Remodeling remains strong, which is a boon to specialty contractors, but new home construction has slowed as demand has waned. Last month, we saw a contraction in single-family home construction, which has historically been a driver of overall construction gains; construction of single-family homes requires more labor per square foot than multifamily.

Another weak spot in job creation could be mining and extraction, where producers are starting to feel the pinch of lower oil prices. Pumping continues, but investment has waned in recent months. While direct employment in the mining industry remains small, there are spillover effects in trucking and rail among other industries. Interestingly, the Institute for Supply Management (ISM)’s manufacturing index jumped in November, but included some softening in the trucking sector; mining is the most likely factor.

Bottom Line
Wages look like they are finally showing real gains, up to 3.1% in November. We expect to see solid job creation but it will appear weaker month-on-month compared to the distortions in October’s data.

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