Trend watch and what’s new this week
The Thanksgiving holiday, which skewed much of the activity-based data to the upside last week, has flipped and is now punching data lower (slides 5 and 6). For example, air passenger counts surged last week but dropped 1.6% week-over-week (WoW). Similarly, dining reservations dropped 7.5% compared to 2019 from +0.2% the prior week.
November job gains surprisingly strong, but cooling evident
U.S. payrolls in November increased by 263,000, above the consensus of 200,000, though it was coupled with downward revisions of 23,000 to the prior months, pulling down the six-month average to 323,000. We show the industry results, which were solid, on slide 7. We also show the unemployment rate, which held steady at 3.7%.
On slide 8, average hourly earnings grew 5.1% from a year ago. While it is down from the cycle-high of 5.6% in March, it remains well-above the pre-pandemic rate of 3.0%. The pace for rank & file workers also rose in November but is below the cycle highs.
Below the surface, though, definite cracks have appeared in recent months. For instance, retail trade lost 30,000 workers during November, the third straight monthly decline. Much of the pain was within general merchandise stores, which lost 32,200 jobs in November and 129,000 positions since March. Apparel stores have also clipped workers, including 5,000 in this past month.
Warehousing & storage have cut workers for five straight months for a total of 63,500 positions. Couriers have lost 14,000 over that same span.
Yet, it appears that most of the surge in hiring and recent layoffs by general merchandise stores and warehousing & storage (see slide 9) was related to the massive shift to online buying during the pandemic and the reversal in ’22 as spending continues to normalize.
Manufacturing data weaker; inflation appeared to be retreating
Two separate gauges showed continued weakness with manufacturing. The Institute for Supply Management (ISM) Manufacturing Index (slide 10) fell to a reading of 49.0 in November, snapping a 29-month expansion streak dating back to May ’20. Within the components, the price paid component continued its sharp decline, down for the eighth consecutive month, which confirms that inflation within manufacturing has already peaked.
Similarly, the final reading of S&P Global’s U.S. Manufacturing Index for November was 47.7. A reading above 50 signifies an increase in manufacturing activity for the month and vice versa.
On slide 11, the Fed’s favorite inflation gauge cooled in October. However, it remains well above the Fed’s 2% target, suggesting that the Fed will keep hiking rates until it falls further.
Labor market conditions are clearly cooling. Indeed, we are seeing substantial cracks below the surface, especially on the industry level. Also, layoff announcements are becoming a daily occurrence.
Yet, contrary to popular belief, the economic plunge that some expect due to a recession hasn’t happened. That’s very consistent with historic job loss patterns, which tend to be gradual rather than falling off the proverbial table.
There is still anecdotal evidence of labor strength. In trips through Cleveland, Detroit, and South Florida in the past two weeks, we saw an inordinate number of businesses with “Help Wanted” signs, and not just at restaurants. This indicates either continued demand, worker churn, or both.
Moreover, the aforementioned layoffs have been largely in big tech and haven’t really shown up thus far. Most tech jobs are categorized within the information and professional & business services industries groups. Neither of these have seen job losses, even at the sub-industry level for computer-related positions. This suggests that many of these workers are finding other jobs, skipping the unemployment line at least for now.
Additionally, the uptick in wages (average hourly earnings) points toward tighter labor market conditions rather than weakness.
It’s also important to note that the unemployment rate – and most of the employment data – are lagging indicators. The notable exception is weekly jobless claims, which have risen from historic lows but aren’t hoisting a recessionary flag just yet.
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