Fed Watch: No News is Good News?

Tim Duy:

No News is Good News?, by Tim Duy: The employment report offered me no reason to change my baseline opinion that the US economy continues to grow at a slow, steady pace regardless of the quarterly fluctuations we see in GDP growth. Indeed, there seems to be little news in November's numbers. This is good news in the sense that fears that the economy is slipping toward stall speed in the final quarter of the year is not yet translating into weaker job growth. The same is true for fears of the fiscal cliff, debt cliff, austerity bomb, etc. The bad news is that we are not seeing the 200k+ numbers that the Fed is leaning towards as evidence of stronger and sustainable improvement in the labor market. That means the Fed will continue to add to its stock of assets, converting most if not all of Operation Twist into an outright purchase program next week.

Headline payrolls rose 146k in November, well-ahead of Sandy-impacted expectations. The BLS says that Sandy did not impact return rate of the establishment survey. But did it impact the actual numbers of reported employees? Unknown at this point. There were downward revisions to the two previous months, including a downward revision of government employees. This picture as it now stands:

On average, a remarkably steady pace of job creation since last fall. The details weren't great, but weren't terrible either. Retail trade gained 52.6k jobs, indicating solid holiday hiring. Professional and business services gained 43k jobs, including 18.0k in the cyclically-sensitive temporary help sector. Construction, however, lost 20k jobs despite mounting evidence of improved residential housing activity. And nondurable goods manufacturing lost 18k. Aggregate hours continue to climb, consistent with expanding GDP:

But wage growth remains abysmal:

On the household side, the details were a little more spotty. Notably, the number of employed fell along with the labor force. Note that the last two months, however, saw out-sized gains in employed relative to nonfarm payrolls:

Lot's of noise there. But under that noise is a consistent trend - job growth at these rates has been sufficient to push the unemployment rate lower:

This suggests that growth, as historically anemic as it is, exceeds potential growth. I would not, however, take much comfort in this yet, as low wage growth suggests that the labor market is nowhere near what can be described as healthy or recovered. I would be wary of adopting Felix Salmon's position that the employment emergency is over.

Bottom Line: Progress, but mediocre progress. Much as we have seen, on average, for the past year. No reason to dramatically shift from a slow and steady outlook in either direction.