Economic & Housing Weekly Note

Job Growth Smashes Expectations

Key Takeaways

  • Job growth beat expectations in November, rising by the most since January. Manufacturing employment also posted a strong gain, reflecting a rebound from the now-resolved GM/UAW strike. Furthermore, this was the third consecutive month of upward revisions to prior months and average hourly earnings grew at a healthy 3.1 percent year-over-year pace. The unemployment rate fell one-tenth, remaining at historically-low levels, and the number of persons who are working part time but would prefer full time jobs declined, another positive sign for labor demand. One piece of lackluster news was that residential construction (including specialty trade contractors) employment posted a small decline this month.
  • November’s ISM Manufacturing report showed that the manufacturing sector continued to contract, remaining below the expansionary threshold of 50 for the fourth straight month as the new orders index tied an expansion low. Both the employment and inventories indices fell, with the latter declining to the lowest level since May 2016. The ISM Nonmanufacturing Index also dipped in November, though it remains in expansion territory. Both the employment and new orders indices rose; however, the business activity index fell to the lowest level since November 2009.
  • The trade deficit narrowed in October to $47.2 billion, its lowest level since May 2018. Both exports and imports fell for the second consecutive month, but the decline in imports was much larger than the decrease in exports. Exports were boosted, in part, by a large increase in agricultural exports, a result of China’s agreement to increase purchase of American agricultural products as part of the resumption of trade talks.
  • Total private residential construction spending fell in October due to a decline in improvement spending, which tends to be volatile. However, construction spending on new housing, which is an input into residential fixed investment, rose to the highest level since November 2018. Rising spending was focused entirely in the single-family sector, where spending rose for the fourth consecutive month and at the fastest pace since the beginning of 2018.

Forecast Impact

The strength of the November jobs report highlights the robustness of the labor market and should provide no reason for the Federal Reserve to move away from a “hold” stance towards future rate cuts. However, there is weakness elsewhere; after months of contracting manufacturing activity according to the ISM, we are beginning to see signs of strain in the service sector as well, with the business activity component of the nonmanufacturing ISM index falling to a ten-year low. Trade uncertainty and volatility is expected to continue to weigh on business sentiment and investment, and we believe further weakness may prompt the Fed to reconsider their current stance. In terms of trade, the significant narrowing of the real goods trade deficit in October positions net exports to add to growth in the fourth quarter. The increase in new residential construction also suggests a rise in residential fixed investment, though the small November decline in residential construction employment will disappoint those expecting an acceleration in the growth of housing supply.

Job Growth Roars Back in November, Unemployment Falls Back to Fifty-Year Low
Manufacturing Activity Contracts and the Service Sector Index Falls

Details on Key Takeaways and Other Releases

  • Nonfarm payroll employment rose by 266,000 in November, according to the Bureau of Labor Statistics. The three-month moving average rose to 205,000. Job gains for September and October were revised up by 41,000. The average workweek was unchanged at 34.4 hours for the third month in a row, while average hourly earnings increased 0.2 percent over the month and 3.1 percent from a year ago. The unemployment rate fell one-tenth to 3.5 percent, tying the lowest rate since December 1969. Manufacturing employment jumped by 54,000, driven by a gain of 41,000 workers in the motor vehicles sector.  
  • The ISM Manufacturing Index fell two-tenths in November to 48.1 (any reading below 50 indicates contracting activity). The new orders, inventories, and employment indices all fell, with new orders falling 1.9 points to 47.2. Both the production and supplier deliveries components increased. The ISM Nonmanufacturing Index, a gauge of service sector activity, fell eight-tenths in November to 53.9. While the new orders and employment indices both rose, the business activity index fell for the second time in three months to 51.6. The imports index also fell for the fourth constructive month.
  • The U.S. trade deficit narrowed by $3.9 billion in October to $47.2 billion, according to the Census Bureau. Exports and imports fell 0.2 percent and 1.7 percent, respectively. The real goods trade deficit, which is used as an input to estimate the net exports component of GDP, narrowed by $3.9 billion to $79.1 billion.  
  • Private residential construction spending fell 0.9 percent in October, according to the Census Bureau, driven down by a 4.5 percent decline in improvements spending. However, construction spending on new housing rose 1.1 percent, increasing for the fourth straight month, with single-family construction spending rising 1.6 percent and multifamily spending falling 1.6 percent. From a year-ago, total private residential construction spending fell 1.3 percent, continuing the trend of annual declines that we have seen since September 2018.


Ricky Goyette
Economic and Strategic Research Group
December 6, 2019

Opinions, analyses, estimates, forecasts and other views of Fannie Mae's Economic and Strategic Research (ESR) Group included in these materials should not be construed as indicating Fannie Mae's business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the ESR group bases its opinions, analyses, estimates, forecasts and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts and other views published by the ESR group represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.