There was a lot of important information on the U.S. economy released this week but the biggest data point is without a doubt the latest monthly job report from the Bureau of Labor Statistics (BLS) out this morning. Indeed, total nonfarm employment in America rose by 161K payrolls in October, below the +178K consensus estimate and down from September’s upward-revised +191K gain. The August figure was also revised higher, which altogether resulted in a 3-month (less-volatile) average payrolls gain of +176K.
That is the weakest reading since June but still an overall healthy pace of job creation that remains well above many Federal Reserve (Fed) officials’ estimates for what is needed to keep up with U.S. population growth. In fact, this average is historically quite high and should therefore drift lower over time as the economy nears full employment. Regardless, Octobers’ headline gain was the 73rd consecutive month of net job creation in this country, the longest such streak in U.S. history. The BLS report even noted that Hurricane Matthew might have kept hiring down a bit last month, although by how much is difficult to estimate.
As for joblessness in October, the official unemployment rate (U-3) slid to 4.9 percent, one of the lowest “election-eve” readings on record, and the underemployment rate (U-6) fell to 9.5 percent, the best print since April 2008. Education clearly provides the best path to greater employment prospects, because the jobless rate for Americans with a bachelor’s degree or higher was just 2.6 percent last month, compared to 7.3 percent for individuals with less than a high school diploma. Despite the significant improvement in underemployment, U-6 is still elevated compared to pre-recession levels and implies that some 5.89 million U.S. employees were in part-time jobs last month but wanted full-time work. The labor force participation rate edged lower to 62.8 percent in October but is higher compared to this same period last year.
As for wage growth, average hourly earnings jumped by 0.4 percent last month and climbed by 2.8 percent on a year-over-year basis, the fastest pace of annual growth since 2009. Although at the best levels of the recovery, compensation gains remain weak compared to past economic cycles but there are signs that upward pressure on wages should continue to build. For example, managers in the U.S. services sector surveyed by the Institute for Supply Management (ISM) have reported for thirteen months in a row that skilled labor has been in short supply. Similarly, the net percentage of U.S. small business owners surveyed by the National Federation of Independent Business (NFIB) saying that they are planning to raise wages jumped to the 2nd-highest level of the recovery in October. All of this points to a tightening labor market that should lead to greater wage growth down the road.
However, there are a few employment-related blemishes worth noting. The annual pace of job growth, for instance, continues to slow, especially for the private sector, and aggregate payroll growth for U.S. production and nonsupervisory workers over the last year was the slowest since 2014 in October. Further, the levels of part-time workers and long-term jobless remain higher than before the last recession, and the number of multiple jobholders rose to a new record last month. Overall, though, the U.S. labor market remains relatively strong and this report by itself does not provide officials at the Federal Reserve with any credible reasons to not raise interest rates at next month’s Federal Open Market Committee (FOMC) meeting. The stock market’s initial reaction to this job report was muted as investors clearly remain more concerned about on the results of next week’s Presidential election.
Sources: Econoday, Twitter, Bloomberg, 538, ZH, U.S. DoL, FRBSL, et alPost author: Charles Couch