October Delivers A Solid Jobs Report
Jobs Growth in October exceeded expectations, as did wage growth. It's unclear, though, how long these numbers can be sustained.
So far this year, the word governing the jobs market has been “inconsistent.” In January and February we saw numbers that, notwithstanding the fact that most of the nation was undergoing a cold and harsh winter, were fairly strong, suggesting that 2018 could be a good year for jobs growth notwithstanding the fact that we are rather late in the recovery from the Great Recession and nearing a point in the jobs market where we’ve typically seen equilibrium in the past. The following two months, though, March and April, turned disappointing as net jobs growth missed even modest target numbers by wide margins, The job situation improved slightly in May, but even those numbers were about the same as what we saw for most of the final two years of the Obama Administration, numbers which are more consistent with a mature recovery reaching what economists refer to as “full employment.” The same was true for the report for June which was somewhat better than where expectations had been set. The July Report, though, fell short of expectations, and the August report was slightly ahead of expectations. Then, in last month’s report, we saw jobs growth fall below expectations while the top-line unemployment number dipped to 3.7%, level we have not seen in about 50 years. While the Administration and its supporters have touted these numbers as indicative of “amazing” growth, truth is that they aren’t much different from what we saw throughout President Obama’s second term in office. Indeed, as I noted in my post about the December 2017 report, the jobs market seems to be at the point where expecting massive increases in job creation are probably out of the question. Instead, we’re likely to see modest but healthy jobs growth, but not anything spectacular.
Rather than the jobs number, though, most analysts have been keeping an eye on wage growth, which has remained stubbornly lagging for the better part of the past two or three years. At an annualized rate, for example, wages have been growing at roughly 2.7%, which is slowly starting to be not enough to keep up with an inflation rate that has quietly increased as the economy has heated up. With the pool of eligible worker shrinking somewhat and unemployment at rates that are generally considered to be “full employment,” there should be more movement on wages as employers seek to attract workers. So far, though, that hasn’t been happening. This has left some analysts wondering if, thanks to increases in worker productivity and investments in automation, employers are no longer seeing the need to raise wages, something that could have a real impact on workers if prices continue to rise. This is especially important given the fact that other economic statistics are showing that inflation at the wholesale and consumer levels was starting to increase at a faster rate than we’ve seen in the past and that, without more rapid wage growth, Americans would effectively see real wages decline in terms of their purchasing power.
In any case, heading into the release of today’s October Jobs Report, the expectation of analysts and traders was that we would see roughly +188,000 new jobs, with the U-3 Unemployment Rate staying at the 3.7% rate it hit last month. Instead, we got a much better number than that, and at least some sign that wage growth may finally be picking up:
Total nonfarm payroll employment rose by 250,000 in October, and the unemployment rate was unchanged at 3.7 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in manufacturing, in construction, and in transportation
The unemployment rate remained at 3.7 percent in October, and the number of unemployed persons was little changed at 6.1 million. Over the year, the unemployment rate and the number of unemployed persons declined by 0.4 percentage point and 449,000, respectively. (See table A-1.)
Among the major worker groups, the unemployment rates for adult men (3.5 percent), adult women (3.4 percent), teenagers (11.9 percent), Whites (3.3 percent), Blacks (6.2 percent), Asians (3.2 percent), and Hispanics (4.4 percent) showed little or no change in October. (See tables A-1, A-2, and A-3.)
The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 1.4 million in October and accounted for 22.5 percent of the unemployed. (See table A-12.)
The labor force participation rate increased by 0.2 percentage point to 62.9 percent in October but has shown little change over the year. The employment-population ratio edged up by 0.2 percentage point to 60.6 percent in October and has increased by 0.4 percentage point over the year. (See table A-1.)
Total nonfarm payroll employment increased by 250,000 in October, following an average monthly gain of 211,000 over the prior 12 months. In October, job growth occurred in health care, in manufacturing, in construction, and in transportation and warehousing.
(See table B-1.)
Health care added 36,000 jobs in October. Within the industry, employment growth occurred in hospitals (+13,000) and in nursing and residential care facilities (+8,000). Employment in ambulatory health care services continued to trend up (+14,000). Over the past 12 months, health care employment grew by 323,000.
In October, employment in manufacturing increased by 32,000. Most of the increase occurred in durable goods manufacturing, with a gain in transportation equipment (+10,000). Manufacturing has added 296,000 jobs over the year, largely in durable goods industries.
Construction employment rose by 30,000 in October, with nearly half of the gain occurring among residential specialty trade contractors (+14,000). Over the year, construction has added 330,000 jobs.
Transportation and warehousing added 25,000 jobs in October. Within the industry, employment growth occurred in couriers and messengers (+8,000) and in warehousing and storage (+8,000). Over the year, employment in transportation and warehousing has increased by 184,000.
Employment in leisure and hospitality edged up in October (+42,000). Employment was unchanged in September, likely reflecting the impact of Hurricane Florence. The average gain for the 2 months combined (+21,000) was the same as the average monthly gain in the industry for the 12-month period prior to September.
In October, employment in professional and business services continued to trend up (+35,000). Over the year, the industry has added 516,000 jobs.
Employment in mining also continued to trend up over the month (+5,000). The industry has added 65,000 jobs over the year, with most of the gain in support activities for mining.
Employment in other major industries–including wholesale trade, retail trade, information, financial activities, and government–showed little change over the month.
In addition to the numbers above, the Bureau of Labor Statistics reported that total nonfarm payroll employment for August was revised upward from +270,000 to +286,000 and the number for September was revised downward from +134,000 to +118,000. These revisions were offsetting resulting in no net change in total for the two months as a whole. Combined with this month’s jobs numbers, this puts the average jobs growth for the past three months at +218,000 net jobs created per month, a rather significant increase from where the three-month average stood last month. So far in 2018, we’ve seen a total of 1,724,000 new jobs created in 2018 as a whole for an average of +172,400 net new jobs created per month since the start of the year, which is a slight increase from where we stood last month. Combined with the final jobs numbers for 2017, this means we’ve seen a total of 3,336,000 new jobs created since January 1, 2017, a period that has largely coincided with Donald Trump’s tenure as President, for a monthly average over that period of +163,000 new jobs created, which is a slight increase from where this average stood as of last month. As I have been saying since the start of the year, these numbers are most certainly not ones that indicate an imminent massive increase in hiring by employers.
During his campaign for President, Donald Trump promised to create 25,000,000 jobs during his Presidency. That would require the creation of 3,125,000 per year over an eight-year term for an average of 261,000 new jobs per month. Over a four-year term that would require 6,250,000 per year, for an average of 521,000 new jobs per month. Based on the average growth rate we have seen since the start of 2017 it would take nearly twelve and one-half years to reach that goal. Based on the average for 2018 to date, it would take roughly ten years to reach the goal. Based on the average jobs growth for the year to date, it would also take roughly twelve years to reach that goal. Based on the average for the past three months, it would also take roughly ten years to reach Trump’s goal. All of this, of course, assumes that we don’t have even a mild recession during that period. Needless to say, it is unlikely that we’re going to see sustained average jobs growth over the next three to seven years that would put us close to the President’s goal absent a significant change in the nature of the jobs market.
Looking deeper into the numbers, the average workweek across the board was increased by 0.1 hours to 34.5 hours while average hourly earnings rose 5 cents to $27.30. Over the year, average hourly earnings have risen by 83 cents or an annualized rate of 3.1%. This is a stronger wage growth number than we’ve seen in recent months, but it’s worth noting that it comes off several months when wage growth was essentially stagnant, so this may just end up being a statistical blip. As I’ve said before, the relatively slow growth we’ve seen in wage growth could be a sign we’re hitting an equilibrium point in the jobs market that will preclude big jumps in either hiring or hourly earnings on a sustained basis. Also on the positive side is the fact that labor force participation rose while long-term unemployment dropped a bit is a positive sign that more people are entering the jobs market on the belief that there’s more opportunity out there.
The New York Times ties the report to what it calls the overall strength in the jobs market:
Friday’s report, the last official economic reading before Americans vote on Tuesday, offered another reminder of the labor market’s persistent strength.
“The underlying fundamentals of the labor market are still really bright, it’s really the strongest part of the broader economy at the moment,” said Michelle Girard, chief United States economist at NatWest Markets.
The economy has historically not played an outsize role in midterm elections, and this political season, border control, health care and Brett Kavanaugh’s nomination to the Supreme Court have gobbled up airtime. Still, “jobs and the economy” was cited more frequently than other issues as the most important in a survey conducted in early October for The New York Times by the online research platform SurveyMonkey.
October marked the 97th consecutive month of job growth, extending an already record-making streak. Average monthly payroll increases have floated above the 200,000 mark. Last week, the government estimated that the economy grew at a hearty annualized rate of 3.5 percent in the third quarter. Confidence remains high among consumers and business leaders.
The report also offered evidence that sidelined workers are not only feeling optimistic about their job prospects but are actually finding work, which is why the jobless rate did not dip despite the big payroll gains.
.WASHINGTON—Hiring accelerated in October and the unemployment rate held at a 49-year low, signs of a strengthening labor market that delivered U.S. workers the best pay raises in nearly a decade.
U.S. nonfarm payrolls increased a seasonally adjusted 250,000 in October, the Labor Department said Friday. The unemployment rate held steady at 3.7% in October, matching lowest rate since December 1969. Wages increased last month and advanced 3.1% from a year earlier, the best year-over-year gain for average hourly earnings since 2009.
Economists surveyed by The Wall Street Journal had expected 188,000 new jobs in October and a 3.7% unemployment rate.
Average hourly earnings for all private-sector workers increased 5 cents last month to $27.30. October marked the first time since the recession ended more than nine years ago that the closely watched pay gauge rose better than 3% from a year earlier. During the downturn, wages were growing because employers were letting go of less-experienced, lower-paid workers, leaving higher-earning workers on payrolls.
Now the opposite is occurring. With relatively few unemployed Americans looking for work, employers are increasingly having to bid up wages to poach workers from other employers. That has been happening for several years for higher-skilled workers such as engineers and welders, but now it is occurring for relatively lower-skilled jobs such as warehouse workers and home-care aides.
Amazon.com Inc. this month lifted pay for it lowest-earning employees to $15 an hour. Other large employers, including Walmart Inc. and Starbucks Corp., have announced similar broad pay increases in recent years.
That provides relief to workers, some of whom felt their paychecks weren’t reflecting the long-running economic expansion in which employers have added to payrolls for a record 97 straight months and the unemployment rate fell to historic lows. Over the past year, wages slowly improved and now are rising solidly ahead of the rate of inflation, which is running near 2%.
But despite the recent improvements, wage gains are still soft compared with other periods of similarly low unemployment. In the early 2000s and late 1960s, wages for nonsupervisors, for which more years of data is available, were growing at a 4% or better annual pace.
That in part reflects that inflation was higher in those periods, but also that worker productivity was growing more rapidly. While productivity has perked up some in the past six months, gains in output per worker have been weak during most the current expansion. If individual workers don’t produce more, it is difficult for employers to justify pay increases that exceed price increases. That could reflect that firms this decade have often opted to add more workers rather than invest in productivity-improving technology
This chart shows how wage growth has been over the course of the recession:
This report is the last set of economic data we’ll get prior to Tuesday’s election and, no doubt, will be something that the Administration will point to as part of the Republican hope that a strong economy will help to stem what still appears to be a “blue wave” that could result in Democrats taking over control of one or both chambers of Congress. In support of that argument, they will no doubt point to the historically low unemployment numbers, but it’s not at all clear that generalized economic statistics will have much impact on the votes of individual voters. Additionally, polling has shown that voters perception of the economy is largely based in their partisan leanings, with Democrats and many independents being far less positive about the state of the economy than Republicans.
In addition to voters, another audience paying attention to these numbers are, of course, the people at the Federal Reserve, which is still following its policy of occasional small interest rate hikes meant to keep the economy from overheating and inflation to grow at the consumer or wholesale level, something that could easily happen in the face of a tightening labor market and strong economy. If that happens, then the Federal Reserve could end up raising rates at a faster pace, which could lead to an economic slowdown. At this point, there’s no sign this is happening. The Federal Reserve did raise rates in September as it had been expected to do but Federal Reserve Board Chairman Jerome Powell also noted at the time that the economy appeared to be growing, but not growing too rapidly. Notwithstanding that, these numbers appear to make it more likely that we’ll see a rate increase come December, or perhaps sooner.
In any case, there’s no question that this is a positive number and one that continues to indicate that the recovery, which now represents the second longest in American history behind only the expansion that lasted from March 1991 to March 2001. The difference, though, is that this expansion has been signiicantly less robust. While the recovery of the 1990s saw average annual jobs growth of +2.0% and Gross Domestic Product growth of +3.6%, the current reovery has average employment growth of just 1.4% per year and GDP growth of +2.2% (Source). For the time being at least, it also indicates that things should continue moving in a positive direction. At some point, though, we’re likely to hit a point where things start heading south, especially if the President’s trade war continues. How strong the economy will remain at that point will be an important thing to watch for both after the midterms and as we get closer to the 2020 election.