The American Puzzle: The Economy Is Fine but Consumers Are Discontent!
Unemployment rose to 4.6% with steady growth in real jobs and contrasting consumer sentiments.
SUMMARY
The US employment report shows unemployment rising to 4.6% alongside growth in private sector jobs, especially in healthcare and construction, while improvements in real sales reflect steady economic growth. However, consumer sentiment has reverted to discontent and grumbling, highlighting a contrast between economic performance and consumer feelings.
KEY HIGHLIGHTS
- Unemployment rate rose to 4.6% with growth in private sector jobs.
- Job additions concentrated in healthcare and construction sectors.
- Steady growth in real sales at 5% nominally.
- Contrast between economic performance and consumer sentiment returning to discontent.
CORE SUBJECT
US Employment Report and Its Impact on Economy and Consumer Sentiment
Let's start with the employment report. The headline was disappointing: the unemployment rate rose to 4.6%, but the adjusted picture of private sector job additions, which excludes disruptions in federal government employment, does not look too bad.
Especially since reduced immigration and an aging population have significantly lowered the "neutral" job growth rate. Recently, we have seen an upward trend.
Private sector job additions in November were heavily concentrated in the healthcare sector, which is therefore not an accurate indicator of cyclical economic strength.
Job additions in all other sectors amounted to only a few thousand. As for the 25,000 new jobs in construction — the second strong month in the past three months — this provides a positive indicator of cyclical economic strength.
Despite data volatility, looking at three- and six-month moving averages shows steady growth in real sales of about 5% nominally, and perhaps more than 2% in real terms. This is a good sign.
The slight improvement in retail sales expectations has reinforced the contrast between what consumers do and what they express about their feelings. After a wave of relative optimism in 2023 and 2024, consumers have returned to levels of discontent and grumbling last seen in 2022, when inflation was at its peak and the stock market was collapsing.
We usually tend to ignore the sentiment aspect of the data and focus on jobs and economic activity, as survey numbers have not been negatively affected by the grumbling reactions of Democrats — although independents are also frustrated, and Republican readings indicate they have peaked.