Why the unemployment rate hitting a four-year high shouldn't trigger alarm
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The job market slowdown is real and ongoing. But it also isn't quite as bad as the headline numbers from delayed October and November jobs reports suggest.
The big picture: Yes, the unemployment rate hit a new four-year high last month, and overall employment contracted over the October-November window.
- But the details are more consistent with the long, gradual labor market slowdown continuing apace — not taking some abrupt turn for the worse this fall.
- The job losses were due to federal government cutbacks, while the rise in the jobless rate was likely exaggerated by statistical anomalies tied to the federal shutdown.
- As RSM economist Joe Brusuelas titled his report on the data, "If you are not confused, you are not paying attention."
By the numbers: The jobless rate rose to 4.6% in November, from 4.4% in September (there will be no October number reported due to the shutdown).
- Employers cut a net 105,000 jobs in October before adding 64,000 in November.
Yes, but: The reported October job losses were entirely due to the federal government's reduction of 162,000 jobs at the conclusion of the fiscal year, which reflects the DOGE buyout program.
- Private payrolls have risen by an average of 75,000 a month for the last three months, which actually suggests stronger underlying job creation than implied by private-sector data sources, particularly payroll processor ADP.
- Separately, the absence of household survey data for October meant a higher-than-usual share of participants in the November survey were doing so for the first time, which exerts a misleading upward tug on the unemployment rate.
- The rise in the jobless rate was pretty modest when you go out an extra decimal point, rising from 4.44% in September to 4.56% in November, so the statistical aberration could be a factor in its reported rise.
Reality check: Still, the composition of the job gains continues to point to a soft overall market — with sectors outside health care treading water at best.
- Health care and social assistance accounted for 116% of private-sector job gains across October and November — meaning everything else was shedding jobs.
- Some sectors that are usually drivers of job creation in a cyclical boom are losing jobs. Transportation and warehousing employment is down 78,000 since February, and manufacturing employment is down 66,000.
Zoom in: Given the data irregularities, the report probably isn't a game-changer for the Federal Reserve, which cut interest rates last week but signaled deep uncertainty about when it may do so again.
- Chair Jerome Powell flagged the expected murkiness last week, saying, "We're going to need to be careful in assessing, particularly, the household survey data," citing "very technical reasons about the way the data are collected" that mean it "may be distorted."
The bottom line: We should get cleaner December jobs data on Jan. 9, which will give a better sense of whether the job market is continuing its gradual slowdown.
