October Jobs Report Beats Expectations, But Still Comes In As Anemic
October's jobs report came back better than expected but hardly something to cheer.
With the economy sending mixed signals about its future direction other than to make clear that a recession within the next year seems unlikely, Wall Street traders, politicians, and analysts have been looking to the Jobs Report to give us an idea on where the economy might be headed, at least in the short-term. Throughout most of 2018 we experienced solid, albeit not spectacular, jobs growth, which led many analysts to wonder if we had entered a new phase of “full employment” where jobs growth would slow down somewhat as employer and employees both assess that we’ve reached a point where new job opportunities are going to be rarer than they were when the post-Great Recession recovery was still young. Additionally, many analysts have turned their attention away from the employment numbers themselves and are paying attention to wage growth, which has remained somewhat stagnant in a range of 2.5% to 3.0% annual growth for the past several years.
The new year, though, seemed to open with a bang thanks to a much better than expected January jobs report that defied even being impacted by the five-week government shutdown that did not end until late January. That enthusiasm was scaled back to some degree in February, which saw largely disappointing job numbers during the shortest month of the year. Things bounced back in March, though, with the Department of Labor reporting the creation of 196,000 jobs, although the unemployment rate itself remained stable. There were also some slight upward revisions for January and February, but nothing substantial. In April, we ended up with stronger than expected job growth as well as some continued positive signs of wage growth, which had been lagging for much of 2018. Then came May with a report of much lower than expected job growth numbers, which actually caused stock markets to rise at the time in hope that it would spur interest rate cuts from the Federal Reserve Board. Continuing with the see-saw effect we’ve seen in the report all year, though, June bounced back with higher than expected job growth while the topline unemployment number remained unchanged. After that, the July report came in slightly higher than expectations as the topline U-3 unemployment rate remained unchanged. The August report came in with a disappointing and below estimates additional 130,000 jobs for the last full month of summer. Finally, September’s report came back with 136,000 jobs created while the U-3 Unemployment Rate remained at historic lows.
Heading into today’s release of the July jobs report, though, the expectation was that we would see the jobs market reflecting a slowdown with the creation of roughly 85,000 new jobs which would be below the month’s job creation figures from ADP, whose report indicated that 125,000 new jobs had been created during the month. This morning, the Bureau of Labor Statistics reports that the jobs number came in higher than expected and that there were significant position revisions to the previous two months:
Total nonfarm payroll employment rose by 128,000 in October, and the unemployment rate was little changed at 3.6 percent, the U.S. Bureau of Labor Statistics reported today.
Notable job gains occurred in food services and drinking places, social assistance, and financial activities. Within manufacturing, employment in motor vehicles and parts decreased due to strike activity. Federal government employment was down, reflecting a drop in the number of temporary jobs for the 2020 Census.
Both the unemployment rate, at 3.6 percent, and the number of unemployed persons, at 5.9 million, changed little in October. (See table A-1.)
Among the major worker groups, the unemployment rates for adult men (3.2 percent), adult women (3.2 percent), teenagers (12.3 percent), Whites (3.2 percent), Blacks (5.4 percent), Asians (2.9 percent), and Hispanics (4.1 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 1.3 million in October and accounted for 21.5 percent of the unemployed. (See table A-12.)
The labor force participation rate was little changed at 63.3 percent in October, and the employment-population ratio held at 61.0 percent. Both measures were up by 0.4 percentage point over the year. (See table A-1.) The number of persons employed part time for economic reasons, at 4.4 million, changed little in October.
These individuals, who would have preferred full-time employment, were working part time because their hours had been reduced or they were unable to find full-time jobs. (See table A-8.)
Total nonfarm payroll employment increased by 128,000 in October. Job growth has averaged 167,000 per month thus far in 2019, compared with an average monthly gain of 223,000 in 2018.
In October, notable job gains occurred in food services and drinking places, social assistance, and financial activities. Employment declined in motor vehicles and parts manufacturing due to strike activity. Federal government employment also was down, reflecting a drop in the number of temporary jobs for the 2020 Census. (See table B-1.)
In October, food services and drinking places added 48,000 jobs. Job growth in the industry has averaged 38,000 over the past 3 months, compared with an average monthly gain of 16,000 in the first 7 months of 2019.
Employment in social assistance increased by 20,000 in October and by 139,000 over the last 12 months. Most of the gain occurred in individual and family services, which added 17,000 jobs over the month and 111,000 over the year.
In October, employment in financial activities rose by 16,000, with gains in real estate and rental and leasing (+10,000) and in credit intermediation and related activities (+6,000). Financial activities has added 108,000 jobs over the last 12 months. Employment in professional and business services continued to trend up in October (+22,000). The industry has added an average of 33,000 jobs per month thus far in 2019, compared with an average gain of 47,000 jobs per month in 2018.
Health care employment continued on an upward trend in October (+15,000). Health care has added 402,000 jobs over the last 12 months.
Manufacturing employment decreased by 36,000 in October. Within manufacturing, employment in motor vehicles and parts declined by 42,000, reflecting strike activity.
Federal government employment was down by 17,000 over the month, as 20,000 temporary workers who had been preparing for the 2020 Census completed their work.
Employment in other major industries–including mining, construction, wholesale trade, retail trade, transportation and warehousing, and information–showed little change over the month.
The main reason for the lower estimates for last month was tied to the General Motors strike that ended just recently, and which kept several million people off the payrolls for the better part of the month. There was also a teacher’s strike in Chicago that could have had an impact on numbers at least in that part of the country. An additional factor, reflected in the government jobs number, is the fact that Census workers who were considered employed over the summer were not working due to the fact that their training for the upcoming summit has been completed. Those workers won’t be back in the workforce until early next year unless they find other employment during that period. Numbers were also dragged down by the ongoing recession in manufacturing, which will likely be reflected in the ISM Manufacturing report that will be released later this morning. As it turned out, though, the impact of these events was overestimated so that the final number, while not spectacular, also wasn’t a bad number.
In addition to the numbers above, the Bureau of Labor Statistics reported that total nonfarm payroll employment for August was revised upward from +168,000 to +219,000 and the number for September was revised upward from +136,000 to +180,000. These revisions made for a net upward revision of +95,000 for those two months. Combined with this month’s job numbers, this puts the average job growth for the past three months at +175,667 net jobs created per month, which is an increase from the previous three-month average.
The fact that the numbers for both of these months were so far off the mark is certainly eyebrow-raising. It isn’t uncommon for numbers from preceding months to be adjusted upward or downward. Typically, though, the adjustment are relatively minor. This time, though, the total adjustment amounted to a 30% adjustment for August, 32% for September, and 31.25%. In other words, the jobs number for the previous two months was off by at least one-third. It makes one wonder what’s going on at the Bureau of Labor Statistics.
Based on these new numbers, we’ve seen total job growth in 2019 of 1,452,000 jobs created, for an average of + 161,333 jobs created per month so far this year. By way of comparison, 2018 saw 2,024,000 new jobs created in 2018 as a whole for an average of +167,500 net new jobs per month. Combined with the final jobs numbers for 2017 and 2018, this means we’ve seen a total of 4,404,000 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 +133,455 new jobs created, which is a slight increase from where this average stood as of last month and roughly similar to what we saw during the final four years of the Obama Administration.
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 sixteen years to reach that goal. Based on the average for 2019 to date, it would take roughly thirteen years to reach that goal. Based on the average for the past three months, it would also take roughly thirteen 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 unchanged at 34.4 hours while average hourly earnings rose six cents to $28.18. Over the year, average hourly earnings have risen at an annualized rate of 3.0%. It’s worth noting, though, 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. Looking at other numbers, labor force participation, the long-term unemployment rate inched downward but was relatively stable compared to earlier in the year.
Ordinarily, a gain of 128,000 jobs would count as an unimpressive month. But the figure looks stronger accounting for the strike at General Motors, which shaved close to 50,000 workers from the employment rolls. United Automobile Workers union members have since approved a contract and ended the strike, and the November report should get a lift from their return to work.
Even accounting for the strike, however, job growth has been slowing. Hiring has been particularly weak in manufacturing, a result of trade tensions and the cooling of the global economy. And there have been hints that the weakness is spreading — confidence among corporate leaders is falling, business investment is in a slump, and companies are posting fewer job openings.
So far, robust consumer spending has been able to keep the decade-long economic expansion on track. Friday’s figures — particularly the strong revisions to earlier data — should bolster that view.
“As long as confidence remains pretty elevated, as long as job gains continue albeit at a slower pace, and as long as those job gains continue to deliver wage growth, consumption should continue to drive the economy,” said Ben Herzon, an economist for Macroeconomic Advisers, a forecasting firm
As Casselman goes on to note, the strong but not spectacular jobs market we’re seeing, along with strong consumer spending, is a big part of why the American economy, while it is slowing, is still in fairly decent shape. At the same time, though, there is no denying that things are slower than they have been during other economic recoveries:
In October 2009, the unemployment rate hit 10 percent, the worst mark of the worst recession since the Great Depression. A decade later, the unemployment rate is hovering close to a 50-year low. There is no doubt that the economy has improved substantially during what is now the longest expansion in American history.
But by many measures, the labor market is still not as strong as at the peak of past economic cycles. A smaller share of working-age adults — particularly men — have full-time jobs, and wage growth has been slow.
“The question is always, ‘compared to what?'” said Oren Cass, a senior fellow at the Manhattan Institute, a right-leaning think tank. “We should certainly celebrate that the unemployment rate is low and that the expansion has gone on as long as it has.” At the same time, he said, “if you ask how does this look relative to 2006-2007 or 1999-2000, it just doesn’t look as good on almost any metric.”
Mr. Cass said the relative weakness was partly the result of long-term structural changes in the American economy. But it also suggests that there is room for further improvement if the expansion can continue. Jerome H. Powell, the Fed chair, has said that one reason policymakers are cutting interest rates is that the recovery is only now reaching people with criminal records, people with less education, or others who often face barriers to employment.
Additionally, it’s worth noting that we’ve only seen one month so far this year when job growth has been about 200,000 new jobs. Additionally, average job growth this year is far below where it was in 2018 or 2017, suggesting that the jobs sector, typically a lagging indicator of the state of the economy, is slowing down. Among other things, this means that we can expect jobs growth further down the line to slow down or at least not significantly increase from the levels we’ve seen over the past several years.
A tighter labor market also means that we should be seeing better wage growth than what we have been seeing so far as employers do what they can to keep employees from straying elsewhere. One of the reasons that may not be happening is that employers may be incentivizing workers through means not measured by wage growth such as better benefits and other enhancements to the working environment. An additional factor at play here is increased productivity due to increases in the use of technology that make a longer workweek or increased hiring unnecessary.
As we get further into the 2020 election cycle, of course, numbers such as this will become more significant. We’ve already begun to see signs of economic slowdowns in the manufacturing and global trade segments of the economy and that is reflected in the most recent job numbers. Other areas showing signs of downturn include the retail industry, which has been losing jobs all year. Whether this is a precursor of an impending downturn is as yet unclear, but it’s something that the Federal Reserve Board, in particular, is keeping an eye on as it formulates policy. In addition to these statistics, it is worth noting that President Trump’s job approval on the economy, which had previously been extremely positive has dropped significantly. If the economy continues to slow down and starts hitting consumers and workers more directly, it could be a problem for Trump and the GOP heading into 2020.