U.S. Employment Growth Weakens In November

The Conference Board Employment Trends Index (ETI) declined in November, following an increase in October. Last month, the index stood at 110.41, down from 110.73 in October. However, compared to one year ago, the ETI is up 4.4 percent. The ETI increase comes as the Bureau of Labor Statistics reported that 155,000 nonfarm jobs were added in November, and the unemployment rate remains unchanged at 3.7 percent.

“The Employment Trends Index declined slightly this month and shows some moderation after reaching its highest point so far in August,” says Gad Levanon, Chief Economist, North America, at The Conference Board.

Levanon notes that the job report and other recent economic data point to a slowing, although still-strong U.S. economy, which he attributes to three factors: : First, there is a disconnect between the gloom and doom environment in financial markets and real economic conditions. This disconnect is partly a result of the fact that compared to real economic activity in the U.S., stock prices are more negatively impacted by the expected rise in interest rates, the increase in labor costs and the slowdown occurring worldwide. Second, while the U.S. economy is not close to entering a recession in 2019, it is expected to gradually slow down. Slower economic activity, tighter labor markets and higher labor costs will lead to weaker job growth, which the latest job numbers suggest may already be happening. Third, even with the expected slowdown, job growth will be more than enough to continue tightening the labor market, leading to faster wage growth and increased inflation pressure in 2019.

Levanon adds, “Jobs should continue to grow, causing faster wage growth which may, in turn, increase inflation pressure and ultimately result in a moderation in employment growth by the end of 2019. As a result, we expect the Federal Reserve to raise rates this month and possibly three more times in 2019.”

In determining its Employment Trends Index, the Conference Board aggregates eight labor market indicators that it has found are accurate within their own areas. It notes that using aggregated individual indicators in a composite index filters out “noise” to show underlying trends more clearly. November’s decrease was driven by negative contributions from three of the eight components. From the largest negative contributor to the smallest, these were the Ratio of Involuntarily Part-time to All Part-time Workers, Initial Claims for Unemployment Insurance and the Percentage of Firms With Positions Not Able to Fill Right Now.

The other indicators include the Percentage of Respondents Who Say They Find “Jobs Hard to Get” from The Conference Board’s Consumer Confidence Survey, the Number of Employees Hired by the Temporary-Help Industry and Job Openings from U.S. Bureau of Labor Statistics, the Federal Reserve Board’s Industrial Production data and Real Manufacturing and Trade Sales from the U.S. Bureau of Economic Analysis.

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