Early signs of a stronger economy

The November jobs report was a good deal stronger than expected (+314K vs. +225K private sector payrolls), and it comes on the back of stronger-than expected gains in September and October. Increasingly, it's looking like economic growth is beginning to accelerate from the modest 2.3% annual growth which prevailed for the first five years of the current recovery. As I noted earlier this week, continued strength in manufacturing activity points to real growth of 4% or so in the current quarter, and today's strong jobs report makes that more likely. 4% real growth in the fourth quarter would make annualized growth over the last nine months of this year about 4%.

The green line in the first chart above marks the average monthly gain in private sector jobs over the six months ending November 2014. November was a welcome outlier, but it's still possible that it was just noise that will fade away in coming months. Also, even though it was surprising to see a gain of over 300K jobs, that's not huge in an historical context. As the second chart above shows, private sector jobs have increased at an annualized pace of 2.6% in the past six months. That plus a 1% gain in productivity (productivity rose 1% in the 12 months ended September) gives you 3.6% real GDP growth. We would need a lot more than that to get the economy back on its long-term trend growth path. Still, there does appear to be an improving trend underway and that is very good news.

As the chart above shows, the private sector has created 2 million more jobs in the current than existed before the Great Recession. It's taken a long time to get there, but there is every reason to think that the gains will continue for the foreseeable future.