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Unemployment Drops to 9-Year Low

The U.S. unemployment rate dropped to 4.6% in November – the lowest level since August 2007 – according to the U.S. Department of Labor, Bureau of Labor Statistics Employment Situation report issued Dec. 2 (Exhibit 1).

Employers added 178,000 new nonfarm jobs in November (Exhibit 2). On average, employers have added about 180,000 jobs per month this year, down from an average of 229,000 new jobs per month in 2015.exhibit 1

We believe the declining pace of job growth is the natural result of the drop in the unemployment rate over the past few years from about 10% to the current rate of less than 5%.

The Federal Reserve board has said it considers a rate of about 4.8% to be full employment, so at 4.6%, the current rate would be considered full employment.

exhibit 2However, not all the labor news was positive. The average hourly earnings declined by 3 cents to $25.89 for all employees on private nonfarm payrolls. That follows an 11-cent increase in October. Year over year, average hourly earnings have risen by 2.5% (Exhibit 3).

Here are some of the other key trends noted in the report:

  • The number of unemployed persons looking for jobs experienced one of its largest drops in years, declining from 7.8 million to 7.4 million for the month. While new hires contributed to that decline, much of the drop also resulted from people leaving the workforce.exhibit 3
  • The number of long-term unemployed (those jobless for 27 weeks or more) declined only slightly from 2 million to 1.9 million, and remains at an elevated level (Exhibit 4).
  • The labor force participation rate for those in their prime working years (age 25 to 54) declined slightly from 81.6% to 81.4%, which is about 1.6% below the prerecession level (Exhibit 5).
  • exhibit 4The average workweek remained the same at 34.4 hours, which is in a range comparable to that preceding the last recession (Exhibit 6).
  • The number of job losers and persons who completed temporary jobs declined by 194,000 to 3.6 million in November.
  • The number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers), was at 5.7 million, which remains high and was little changed in November, but was down by 416,000 over the year (Exhibit 7).exhibit 5
  • Initial jobless claims, reported weekly, remained at a very low level (Exhibit 8).

The low unemployment rate of 4.6% along with solid retail sales figures in recent months will likely influence the Federal Reserve’s decision whether or not to raise the fed rate.

We believe it is likely that the Fed will raise rates by 0.25% when it meets Dec. 13-14. That would be the only rate hike of 2016.exhibits 6, 7, 8

The last hike was December 2015. We believe a small rate hike could be beneficial to net savers without materially affecting the economy or consumer spending.

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