Labor market stronger than expected in November

Payrolls up 94,000; jobless rate stays at 4.7% on household survey gains

By Rex Nutting, MarketWatch

Last update: 10:38 a.m. EST Dec. 7, 2007

WASHINGTON (MarketWatch) -- The U.S. labor market was slightly stronger than expected in November, the government said Friday, a factor that's likely to weigh on the Federal Reserve's decision next week on whether to cut interest rates.

The economy added 94,000 nonfarm payroll jobs last month, according to a survey of business establishments, the Labor Department said in a mixed report released Friday. Read the full report.

Economists surveyed by MarketWatch were expecting growth of 85,000. See Economic Calendar.

"The November employment report was not a blowout, but it was certainly healthy enough to put off talk that the economy is careening off the cliff into a recession," wrote Stephen Stanley, chief economist for RBS Greenwich Capital.

Payrolls had risen a revised 170,000 in October. Payroll growth in September and October was revised lower by a total of 48,000.

However, a separate survey of households showed the strongest job growth in nearly six years, with 696,000 more people saying they had jobs in November. As a result, the unemployment rate was steady at 4.7%.

Economists were expecting the unemployment rate to tick higher to 4.8%.

"Today's report does little in the way of clearing up what has been a somewhat cloudy economic outlook of late.," wrote Richard Moody, chief economist for Mission Residential.

Ahead of the report, economists were expecting the Federal Open Market Committee to lower its overnight lending rate by a quarter percentage point to 4.25% at its meeting on Tuesday, but some market participants are looking for a half-point cut. Last week, St. Louis Fed President William Poole said a large gain in payrolls could force the market to re-evaluate its expectations for a big easing.

The middle-of-the-road report "will allow the FOMC to do whatever it wants on Tuesday, wrote Joshua Shapiro, chief economist for MFR Inc. Other analysts said the FOMC would likely cut the federal funds rate by a quarter point next Tuesday. See full story.

The strength in the household survey in November is a conundrum, following months of weakness. Some economists suggested the gains reflected problems in seasonally adjusting the raw data.

Employment in the household survey had fallen by a total of 250,000 since March, leading some economists to believe the economy was much weaker than the payroll survey suggested. Economists generally judge the payroll survey to be more accurate, but acknowledge that the household survey could do a better job of catching turning points in the economy.

In a separate report, the Reuters/University of Michigan consumer sentiment index fell again, hitting the second lowest level in 15 years; only the month after Hurricane Katrina hit was worse. See full story.

Details

Payrolls have grown by an average of 103,000 per month over the past three months, the best since July.

The employment participation rate -- the percent of adults who were in the labor force -- rose from 65.9% to 66.1%, also the best since July.

Average hourly earnings rose 8 cents, or 0.5%, well ahead of the 0.3% expected. October's wage growth was revised lower to a 1 cent gain. In the past year, average hourly earnings are up 3.8%.

Goods-producing industries cut 33,000 jobs in November, including 24,000 in construction and 11,000 in manufacturing.

Services-producing industries added 127,000 jobs. Financial services cut 20,000 jobs.

Government added 30,000, including 13,000 in education, continuing a string of strong hiring in schools.

Professional and business services added 24,000 jobs, including 11,000 in temporary-help services, a sign that businesses could be cautiously optimistic about the economy.

Retail industries added 24,000 jobs, the first gain since July. Education and health-care added 28,000 jobs.

Total hours worked in the economy increased 0.1%. The average work week was steady at 33.8 hours. Hours worked in manufacturing increased by 0.2%.

Of 278 industries, 49.8% were hiring in November, the first month since September 2003 that fewer than half of industries were adding jobs. Of 84 manufacturing industries, 45.2% were hiring in November.

Rex Nutting is Washington bureau chief of MarketWatch.

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