Jobs aren’t growing in just one corner of the US labour market. Rather, they’re growing everywhere.
“Job growth improved across a number of industries,” highlighted Goldman Sachs’ Jan Hatzius after Friday’s surprisingly strong jobs report.
“Even the Federal government hired 5K,” exclaimed Bank 0f Tokyo-Mitsubishi’s Chris Rupkey. “Not a single major jobs category experienced a decline.”
US companies added 321,000 nonfarm payrolls in November, which was much stronger than the 230,000 expected by economists. It was the biggest single month of payroll gains since January 2012.
“Jobs gains were broadly based during the reference period, with all major segments contributing to the overall gain,” noted Societe Generale’s Brian Jones. “Echoing the anecdotal evidence from the latest edition of the Federal Reserve’s Beige Book, the BLS found that the breadth of job gains was extremely impressive last month.”
Even The Energy Sector Has Held Up
One important detail in both the jobs report and the beige book: no major layoffs in the US energy sector.
Rather, the relevant sector of the job market was marked by a lack of hiring. While that’s not as good as net job growth, it’s certainly not as bad as net job cuts.
“Employment in mining and logging experienced no growth over the month of November,” the Bureau of Labour Statistics said in a presentation following Friday’s jobs report. “The lack of job growth in the sector is further supported by a decline in crude oil prices. The West Texas Intermediary Crude Oil price was $US78.71 per barrel in November.”
Crashing oil prices have put the squeeze on energy company profits. For some drilling projects, the current price of oil isn’t high enough to cover the costs of exploration and production. And it generally doesn’t make sense to pursue money losing projects.
Energy producers, however, can’t just shut down a drilling project like the flip of a light switch. Conversely, they can’t switch them on overnight either.
Anecdotally, it appears the drillers haven’t really flinched. From the Beige Book, here are some insights from the Federal Reserve’s industry contacts:
- Minneapolis Fed: “Activity in the energy sector was steady, but mining activity rose since the previous report. In early November, oil and gas exploration activity decreased in North Dakota and increased in Montana relative to a month earlier; production remained at record levels. Despite recent declines in oil prices, officials in North Dakota expect oil production to continue increasing over the next two years.”
- Kansas City Fed: “Most contacts continued to report a high level of drilling activity, and active oil and gas rigs rose through early November, particularly for natural gas. Respondents remained optimistic about future drilling but were closely monitoring the price of oil, which was close to many firms’ breakeven price.”
- Dallas Fed: “Growth in Texas drilling activity was concentrated in the Permian Basin in West Texas; drilling activity outside of the Permian Basin was little changed. Outlooks for next year, though still positive, were less optimistic than in the prior report, and contacts said that budgets were being revised and capital expenditures are expected to decline in response to lower oil prices.”
“We’ve been through wild price swings before and we take a long view on energy investments,” said Exxon Mobil CEO Rex Tillerson to CNBC on Wednesday.
What To Expect
It’s likely that we haven’t seen major layoffs because the energy company executives are betting prices will come back. So the real risk for energy industry jobs is if the currently low prices persist.
For now, the energy gurus are feeling pretty good that prices will come back soon.
“Crude oil is currently down 1.2 standard deviations for the 10-year period,” wrote US Funds Frank Holmes. “This might not sound like much, but … oil has rarely gone above or below one standard deviation during this time.”
Holmes further points to some complicated drilling economics that explain why drillers can’t even shut down some of the money losing wells.
“At $US70, expect more companies, especially those involved in fracking and deepwater drilling, to cut production even further,” Holmes said. “The problem is, they really can’t afford to do so. It currently takes output from four or five new wells to replace the cost of one previously drilled unconventional well, which is why companies must keep up with exploration and production.”
In other words, we shouldn’t be surprised that there haven’t been big job cuts in the energy sector. And we shouldn’t be surprised if it’s a while before we see major cuts.