November’s national Employment Situation report from the Bureau of Labor Statistics was marginally weaker than expected. The number of new jobs reported for the month came in at 155,000, lower than the expected 190,000. Otherwise the report was in line with expectations, the headline U3 employment rate coming in at 3.7 percent for the third month in a row. Health care, manufacturing, retail, transportation and business services all added employment with the other sectors essentially flat. No sector was a notable job loser.

While the U3 held steady, the broadest measure of labor underutilization, U6, ticked up only slightly to 7.6 percent. On the other hand, average hourly earnings were marginally higher, a 3.1% increase year-over-year. Perhaps most notably, the number of long-term unemployed fell substantially, 120,000 to 1.3 million who have been jobless for 27 weeks or longer.

Interestingly, the knee-jerk equities markets pretty much ignored the report as they opened on December 7. With the nation essentially at full employment, the report appears to have offered little cause for either celebration or concern.

A marginally weaker than expected new jobs report will add a little fuel to the argument that the economy is slowing somewhat. But it is also clear that the labor market is still in very good shape. The report could give those in the Federal Open Market Committee hesitant to vote for raising rates some support for pausing the rate hike process. It is not weak enough to rule out a hike, but it does add some uncertainty to predicting the Committee’s actions.  The report is not weak enough that it would rule out a hike, but it does add some uncertainty to predicting their action.

About the Author

Tom Cunningham holds a Ph.D. in economics from Columbia University and was senior economist with the Federal Reserve Bank of Atlanta from 1985 to 2015. Mr. Cunningham serves as a consultant to MST in the creation and ongoing development of the MST Virtual Economist and is the MST Advisory economics specialist

Why should lenders consider the monthly jobs report?

As employment is a key factor in projecting loan portfolio performance, current employment statistics and longer term trends are likely to be primary considerations for most banks and credit unions as they incorporate forward-looking economic factors in their ALLL estimations under the CECL accounting standard. 

How can lenders consider economic factors in estimating their reserves?

Under the new accounting standard, CECL, financial institutions will be required to consider economic factors in estimating their reserves. The MST Virtual Economist is an efficient, automated way to evaluate qualitative economic factors and project their impact on the institution’s loss rate, find new variables that impact the loss rate and determine the relevance of the economic factors you are already using to make qualitative adjustments. Click here for more information or to schedule a demonstration.