The Independent Market Observer

Monday Update: Job Growth Slows in November

Posted by Sam Millette

This entry was posted on Dec 6, 2021 10:12:21 AM

and tagged In the News

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In his Monday Update, Commonwealth’s Sam Millette highlights consumer and business confidence, November employment, international trade, and inflation. Last week saw a number of important economic data releases, with a focus on consumer and business confidence and the November employment report. The jobs report showed a notable slowdown in headline job growth in November, although the month’s underlying data was more encouraging. This week will be relatively quiet, with only three major data releases scheduled. They will cover international trade, consumer inflation, and a first look at consumer sentiment in December.

Last Week’s News

The Conference Board Consumer Confidence Index for November, released on Tuesday, showed confidence declining by more than expected. The index fell from a downwardly revised 111.6 in October to 109.5 in November, against calls for a more modest drop to 110.9. This result brought the index back in line with September’s 109.8 reading, signaling continued consumer concern about the economy. Although confidence remains well above 2020’s lockdown-induced lows, rising medical risks and concerns about inflation have challenged consumer sentiment over the past few months. The discovery of the Omicron variant in early November likely contributed to the month’s drop in confidence. Historically, improving confidence has supported faster consumer spending growth, so the recent declines are worth monitoring. With that said, consumer spending growth has remained strong over the past few months. Pent-up demand continues to power spending growth, despite the souring consumer sentiment.

Wednesday saw the release of the ISM Manufacturing index for November. This widely followed measure of manufacturer confidence improved, as the index rose from 60.8 in October to 61.1 in November. The forecasts were for a reading of 61.2. This is a diffusion index, where values above 50 indicate expansion, so the November result was an encouraging sign that the manufacturing recovery continued to gain momentum. The improvement was driven in part by increased hiring growth, as manufacturers continue to spend and invest in their businesses to meet high buyer demand. This strong result marks a seven-month high for the index, which has remained in expansionary territory since June 2020. Throughout the course of the year, manufacturer confidence has been supported by high levels of demand. Tangled supply chains and high prices remain a headwind for the industry, however.

On Friday, the November employment report was released. Headline job growth slowed notably during the month, with only 210,000 jobs added against forecasts for 550,000 additional jobs. Although the September and October job reports were revised up by 82,000 jobs, the headline jobs number for November was disappointing. With that said, the underlying data was more encouraging. The unemployment rate fell notably, dropping from 4.6 percent in October to 4.2 percent in November. The forecasts were for a more modest decline to 4.5 percent. The monthly job report consists of two surveys, one of employers and the other of households. The headline job number comes from the employer report, while the unemployment rate comes from the household survey. In November, the household survey showed a significant increase in hiring in November, as well as a rise in the labor force participation rate. This data should calm concerns about the slowdown in headline job growth in November.

We finished the week with Friday’s release of the ISM Services index for November. This measure of service sector confidence improved by more than expected. The index increased from 66.7 in October to 69.1 in November, against calls for a decline to 65. This result, which marked a record high, signals continued strong levels of service sector confidence. As was the case with the ISM Manufacturing index, this is a diffusion index, where values above 50 indicate growth. The November result was driven by high consumer demand, with both the current activity and new orders segments showing improvement. The strength was widespread, as all 18 service industry sectors reported growth. Historically, high levels of business confidence have supported business spending, so this record report bodes well for business spending in November.

What to Look Forward To

On Tuesday, the international trade report for October is set to be released. Economists expect to see the trade deficit decline sharply. Their forecasts call for the trade deficit to narrow from $80.9 billion in September to $66.8 billion in October. If the estimates prove accurate, this report would mark the smallest monthly deficit since April. The advanced report on the trade of goods in October, which was previously released, showed a notable decline in the deficit for this segment. Exports of goods surged by 10.7 percent in October, while imports saw a 0.5 percent rise. Throughout 2021, the uneven pace of the global economic recovery and the high levels of domestic consumer demand caused the monthly trade deficit to increase notably, so the anticipated narrowing in October is a good sign. We may be starting to see a normalization of international trade, which could support faster overall economic growth to finish out the year.

Friday will see the release of the Consumer Price Index for November. The forecasts are for consumer prices to increase by 0.6 percent during the month, in a step down from October’s 0.9 percent gain. On a year-over-year basis, consumer inflation is expected to rise from 6.2 percent in October to 6.7 percent in November. If estimates hold, this report would mark the highest level of year-over-year headline consumer inflation since 1982. Economists expect core consumer prices, which exclude volatile food and energy prices, to go up by 0.5 percent for the month and 4.9 percent year-over-year. Throughout the year, consumer prices have been pressured by pent-up consumer demand and low supplies due to tangled global supply chains and depleted business inventories. Looking forward, relatively high levels of consumer inflation are likely to continue. In the short term, however, falling energy prices may mitigate consumer price pressure in December.

Friday will also see the release of the preliminary estimate for the University of Michigan consumer sentiment survey for December. Sentiment is expected to improve modestly, with the index set to increase from 67.4 in November to 68 in December. November’s sentiment report marked the lowest level for the index since 2011, so any improvement would be welcome. Still, sentiment is expected to remain well below the 2021 high of 88.3 recorded in April. The challenges to consumer sentiment have grown this year. Consumer concerns over rising prices have caused the index to plummet to well below levels seen in April 2020, when the initial lockdowns were implemented. Over the past few months, there has been a divergence between the University of Michigan consumer sentiment survey and the Conference Board Consumer Confidence Index. The former report is more highly affected by consumer views on inflation, while the latter report focuses on the health of the labor market. Both reports do, however, point to continued consumer unease, which should be monitored in the months ahead.

That’s it for this week—thanks for reading!

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