Jobs Report ‘Confirms the Economy Is Cooling’

The Labor Department reported a modest November job gain and rising unemployment Tuesday, but NMMA chief economist Shawn DuBravac said he saw reasons for optimism beyond the top-line numbers.

The government said the economy added 64,000 jobs — slightly above predicted growth of 40,000 to 50,000 — and the jobless rate rose to 4.6%, the highest it has been since September 2021.

Those results, combined with the Commerce Department’s report that retail sales were flat in October, appeared to vindicate the Federal Reserve’s decision last week to support the job market by reducing the benchmark federal funds rate by another quarter-percent.

“The labor market is soft, and the delayed November jobs report confirms the economy is cooling,” DuBravac told Trade Only Today. “That said, conditions are likely not as weak as the headline numbers suggest. A significant share of the job losses over the past two months came from the government sector, which shed roughly 162,000 workers due to deferred retirement buyouts tied to Department of Government Efficiency initiatives.

“Outside of government, the private sector has averaged a more solid 75,000 net new jobs per month over the past three months,” he added. “November job gains were concentrated in health care and social services, however, underscoring that hiring strength is not broadly distributed.”

The Labor Department said the health-care sector continued to lead job creation, adding 46,000 positions in November. Construction employment encouragingly added another 28,000 jobs, and the social assistance category contributed 18,000.

However, the transportation and warehousing category lost 18,000 jobs, and the federal government shrank by another 6,000 workers after the dramatic decline of 162,000 in October, when many of those who had accepted deferred resignation dropped off the rolls.

Addressing the retail sales report, DuBravac said the no-gain overall result overstated consumer weakness.

“While total retail sales were flat in October, sales rose 0.5%, excluding autos and gas stations, two volatile categories that can distort the headline number month to month,” he said. “Core consumer spending remains more resilient than the top-line data implies.”

For the boating industry, he said, the combined jobs and retail sales data “present a mixed but largely constructive backdrop. Job growth is slower, and wage gains are cooling, but the labor market remains intact. This suggests the economy is transitioning from an overheated environment toward a more sustainable pace. Rising labor force participation also signals improving confidence, which could help support demand for higher-ticket discretionary purchases like boats.”

Ian Wyatt, chief economist at recreational marine lender Huntington National Bank, said his view is that the economy is continuing to grow at a modest pace.

“Wages are up 3.5% over the past year and are outpacing inflation, but job growth has been basically flat since April,” he told Trade Only Today. “Retail sales are up decently versus last year. So the people with jobs are doing OK, wages are up, but if you do not have a job it is tough to find one. Young people, in particular, are struggling in the current labor market, as much of the increase in unemployment is driven by younger workers.”

On the other hand, Wyatt said, “a lot of core boating customers are doing well. In sectors like construction and manufacturing, where blue-collar workers often buy powersports equipment and boats, wage growth has been stronger than other areas. Of all sectors, construction is about the most dependent on immigrant labor. With many large data center projects and the change in immigration policy, wage growth should continue to be strong.

“We also have the stock market near all-time record highs, and upper-income households’ balance sheets are in great shape,” he added. “So the upper-income and blue-collar boat buyers should be a in a good position to buy next year.”

Wyatt said credit card data helped his bank “anticipate flat monthly retail sales in October (though they were up 3.5% year-over-year), and that same data shows us November sales will be stronger on very good Black Friday sales. We know from the card data that these swings in retail sales are largely driven by shifts among upper-income households. Wage growth and household income growth is focused among middle- and upper-income households, which should benefit the boating industry.”

Former NMMA president Thom Dammrich told Trade Only Today that he expects the premium end of the boat market to hold up well during the winter boat show season, but the “middle class is pulling in spending, and that is not good for the recreational marine industry overall. Holiday spending may be up, but it has been helped by a surge in credit card debt that could lead to a financial hangover in the new year.

“That would not be good for first-quarter sales at boat shows,” he added.  “A lot of boats will be sold at boat shows, but probably not enough to keep the industry from treading water. And some of those sales may come at the expense of dealer margins and special promotions from manufacturers.”

Dammrich said that “we seem to be getting mixed messages on the economy, and in my opinion mixed messages are not good. Aside from significant growth in health care and technology employment, other important segments seem to have stagnated.

“It will be important to watch the next few months, especially January, to get a better sense of where the economy is headed,” he added. “But with consumer spending flat, large layoffs and rising unemployment, the next few months could prove to be rocky.”

One detail in the jobs data that could be encouraging is that the labor force participation rate — the percentage of the workforce that is in the economy ‚ rose slightly, to 62.5%, from 62.3% in the jobs report issued in early September, the last time such a report was compiled. The participation rate sometimes climbs in a growing economy, swelling the jobless rate, because more people sense that work is available, and they come off the sidelines to apply. They then show up in the government’s unemployment statistics.

That does not appear to be the case, as young people, in particular, report that they are having trouble finding jobs in a low-hire, low-fire economy. Kevin Hassett, director of the White House Economic Council, told reporters Tuesday that he thinks the 250,000 former federal workers who took the buyout the government offered are staying in the labor force and looking for new jobs, swelling the unemployment numbers.

Dammrich acknowledged that the increase in the participation rate can signal confidence as workers re-engage.

“It could also reflect rising affordability issues, combined with decreases in federal assistance driving more people to work and seek work,” he said. “Rising unemployment alongside participation gains could mean the economy is not generating enough jobs to absorb all of the new entrants. This could be due to sluggish hiring, which the numbers do not reflect, or structural mismatches occurring, as all new entrants may not have the skills to work in the high-growth segments of health care and technology.”

Wyatt and Dammrich agreed with DuBravac that Tuesday’s jobs and retail sales figures support the Fed’s decision last week to reduce its federal funds rate to a target range of 3.5% to 3.75%.

“The latest jobs data was in line with our and the Fed’s expectations, and this somewhat weak jobs data supports their decision to cut in December and at the previous two meetings,” Wyatt said. “Since this was roughly in line with the Fed’s view of the economy, we do not think this changes our view that the Fed will hold rates steady in January.”

Dammrich said he feels as if the economy is on a knife’s edge.

“Yes, I think the Fed’s easing was the right thing to do, given this jobs data,” he said. “Inflation is still a concern, as is the potential for stagflation.”