There were two important reports on the U.S. economy released this morning. First, private sector payrolls rose by 227K in October, according ADP data. That was much better than expected and the largest monthly gain since February. The September figure was revised slightly lower, but the less volatile 3-month average pace of job creation still ended at 202K in October. That is the best reading since April and more than enough to keep up with population growth. Small business employment, though, remained a weak spot, as payrolls at firms with 1-49 workers rose by just 29K in October. That was one of the smallest gains of the year and hiring at these firms accounted for just 13 percent of all the private-sector payrolls added to the economy in October. Moreover, the continued downtrend in small business job creation highlights the difficulty these firms are having when competing with larger companies in a tight labor market for workers that expect improving wages and benefits.
Speaking of employee compensation, a report from the Bureau of Labor Statistics (BLS) showed that total employment costs (employer-paid taxes such as Social Security and Medicare in addition to the costs of wages and benefits) in America continued to grow at an elevated rate in the third quarter of 2018. Specifically, total compensation costs for civilian workers increased by 0.8 percent in Q3, more than anticipated, the largest quarterly gain since Q4 2017, and enough to lift the year-over-year pace of growth to 2.8 percent. That matches the fastest annual rise in employment costs since 2008 and is not too surprising as more businesses are forced to boost worker compensation in response to widespread labor shortages. Moreover, wages and salaries jumped by 0.9 percent in Q3, while benefits rose by 0.4 percent. Although U.S. workers will likely welcome the higher pay, an uptrend in compensation is typically followed by a rise in both inflation (employers passing on increased labor costs) and interest rates (the Fed hiking).
Sources: Econoday, ADP, U.S. DoL, Bloomberg, Twitter, FRBSL
Post author: Charles Couch