November Payroll Numbers: Are We Cruising or Stalling?

When I look at nonfarm payrolls, I try to disregard the headline figure and look at the year-over-year percent change in unadjusted total payrolls. This allows me to remove any seasonal effects from the series without making any of the hard assumptions required by “fancier” seasonal adjustment methodologies. The November report that came out Friday puts us at 1.42% year-over-year growth, up from 1.38% in the previous month. The exponential three-month moving average, which serves to smooth out some of the month-to-month volatility in the series, sits now at 1.41%, down slightly from 1.43% last month. This moving average is plotted as a green line in the chart below. The purple line in the chart is a measure of the six-month trend in year-over-year payrolls growth. This measure will be positive (negative) if in the previous six months year-over-year payrolls growth has been accelerating (decelerating) and near zero if it has been relatively steady. Currently, the six-month trend reads 0.19%, which is remarkably close to zero. In fact, over the past six months year-over-year payrolls growth has been range-bound between 1.3% and 1.5%. Analyzing the entire sample, which goes all the way back to the 1930s, we found that the following two conditions almost always coincide with economic recessions: