Labor Market Is Working


The question is no longer whether employment is growing, but whether growth will match expectations. In other words, today's version of bad labor news is simply less-good news.

U.S. nonfarm payrolls have expanded in each of the last 73 months, including the addition of 161,000 jobs in October (below the 173,000 consensus) and 2.36 million in the last 12 months.

We expect job growth to continue its six-year trend. Between January 2008 and February 2010, the U.S. hemorrhaged 8.7 million jobs. However, since the 2010 trough, payrolls have grown by 15.2 million. In May 2014, payrolls exceeded their prerecession levels, and every month since then have set a new record high.

The unemployment rate has fallen to 4.9% from a high of 10.0% in late 2009. While the unemployment rate has actually risen over the last five months, that trend is deceptive because 1.2 million people entered the labor force during that period. Such a trend reflects not only young people seeking their first jobs, but the formerly unemployed who see enough improvement in the labor market to try their luck again.

While employment data alone cannot lift the stock market, they reflect two undeniably optimistic trends:

• Consumers, who account for about 70% of the U.S. economy, have more spending power each month, and they aren't afraid to use it.

• While U.S. businesses may not be investing aggressively in property, hiring trends suggest they remain fairly confident in their ability to grow revenue going forward.

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