US: Strong payrolls, unemployment rate drop to 7%

The US non-farm payrolls report showed that hiring remained strong in November. Non-farm payrolls rose by 203 000 last month, above the consensus of 185 000 and marginally stronger than the October reading of 200 000.
Revisions to the previous months’ data were very limited. Looking at the breakdown, government payrolls picked up by 7 000 following a 14 000 decline in October. Growth in private sector payrolls, on the contrary, slowed from 214 000 in October to 196 000 in November. Within the private sector, hiring accelerated in the goods-producing sector, from 31 000 to 44 000. The rebound was based in the manufacturing sector, where hiring showed its biggest increase since February 2012 (27 000 from 16 000). Construction payrolls remained on an upward trend too, rising by 17 000 from 12 000 in October. Within the service-providing sector however, hiring slowed somewhat following a strong October reading. Employment in the services sector rose by 152 000, down from 183 000 in the previous month. Strength was based in trade & transportation (60 000 from 41 000) and education & health (40 000 from 30 000), while hiring in business services was somewhat disappointing (35 000 from 48 000) and hiring slowed also in leisure & hospitality (17 000 from 49 000).
Encouraging was however an acceleration in temporary help payrolls, following a slow October month (16 000 from 9 000). Net employment dropped in the financial sector and information sector following slight gains in the previous month. The biggest surprise this month came however from the household survey. After a limited shutdown-related uptick in October, the unemployment rate dropped sharply in November. The unemployment rate fell to 7.0%, a five-year low and sharply down from the 7.3% in October. The breakdown is encouraging too. Employment increased by 818 000, which was however mostly a reversal of the shutdown-related drop (-735 000) in October. Unemployment however fell significantly, by 365 000 to a total of 10.907 million. As a result, the participation rate picked up from its multi-year low of 62.8% to 63.0%. Average weekly hours worked rose by 0.3% M/M to 34.5, while aggregate hours worked rose by 0.5% M/M to 99.3. Finally, earnings picked up by 0.2% M/M, in line with expectations, while the annual rate slowed from 2.2% Y/Y to 2.0% Y/Y, reminding that wage growth remains slow. The headline payrolls report came out slightly stronger than expected, confirming that the US labour market is gathering momentum after a slowdown during the summer months. The pick-up was mainly based in the manufacturing sector, while employment in the services sector remains on track. Especially eye-catching was however the sharp drop in the unemployment rate, this time for the correct reason! Based on economic data, this payrolls report provides the perfect excuse for the Fed to start tapering in December, but we think that other reasons (liquidity concerns at the year-end, holiday shopping season) will convince the Fed to delay such a decision till January or March.