Strong October Jobs Report Implicates Fed Policy, Role Of The Economy In 2016 Election
A much stronger than expected October Jobs Report suggests that the Federal Reserve is likely to move on interest rates, and raises questions about how economic issues will play out politically in 2016.
After several months of jobs reports that could be described as fair to middling at best, the October Jobs Report released today came in far stronger than even the most optimistic analysts were expanded, and seems to make it inevitable that the Federal Reserve will modestly increase interest rates before the end of the year:
Total nonfarm payroll employment increased by 271,000 in October, and the unemployment rate was essentially unchanged at 5.0 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in professional and business services, health care, retail trade, food services and drinking places, and construction.
Both the unemployment rate (5.0 percent) and the number of unemployed persons (7.9 million) were essentially unchanged in October. Over the past 12 months, the unemployment rate and the number of unemployed persons were down by 0.7 percentage point and 1.1 million, respectively. (See table A-1.)
Among the major worker groups, the unemployment rates for adult men (4.7 percent), adult women (4.5 percent), teenagers (15.9 percent), whites (4.4 percent), blacks (9.2 percent), Asians (3.5 percent), and Hispanics (6.3 percent) showed little or no change in October. (See tables A-1, A-2, and A-3.)
Total nonfarm payroll employment increased by 271,000 in October. Over the prior 12 months, employment growth had averaged 230,000 per month. In October, job gains occurred in professional and business services, health care, retail trade, food services and drinking places, and construction. (See table B-1.)
Employment in professional and business services increased by 78,000 in October, compared with an average gain of 52,000 per month over the prior 12 months. In October, job gains occurred in administrative and support services (+46,000), computer systems design and related services (+10,000), and architectural and engineering services (+8,000).
Health care added 45,000 jobs in October. Within the industry, employment growth continued in ambulatory health care services (+27,000) and in hospitals (+18,000). Over the past year, health care has added 495,000 jobs.
Employment in retail trade rose by 44,000 in October, compared with an average monthly gain of 25,000 over the prior 12 months. In October, job gains occurred in clothing and accessories stores (+20,000), general merchandise stores (+11,000), and automobile dealers (+6,000).
Food services and drinking places added 42,000 jobs in October. Over the year, the industry has added 368,000 jobs.
Construction employment increased by 31,000 in October, following little employment change in recent months. Employment in nonresidential specialty trade contractors rose by 21,000. Over the past 12 months, construction has added 233,000 jobs.
Employment in mining continued to trend down in October (-5,000). The industry has shed 109,000 jobs since reaching a recent employment peak in
December 2014. Employment in other major industries, including manufacturing, wholesale trade, transportation and warehousing, information, financial activities, and government, showed little or no change over the month.
In other areas, the report showed modest increased in average hours worked and the average work week, but also showed that average hourly earnings had increased nine cents over the month and that the total change in hourly earnings over the past year has been 2.5%, a fairly healthy number given the fact that inflation has been largely non-existent during this period. This last numbers seems to put to rest, at least for now, some of the complaints about previous jobs reports that showed modest increases in wages even when most of the other numbers were generally positive. Today’s news suggests a long term trend of acceleration in wage growth, which is obviously good news. Additionally, there were modest increases in the jobs numbers for the previous two months of +12,000 jobs over the two months. This puts the average job gains per month at 187,000 per month for the past three months, and 230,000 per month over the past twelve months. Additional positive news includes the fact that the broader U-6 unemployment rate now stands at 8.9% versus 11.5% a year ago, that the number of people working part-time involuntarily is dropping steadily, and full-time employment is now at levels it was before the start of the Great Recession.
The New York Times is typical of the coverage of the morning, which is generally quite positive:
The American economy added 271,000 jobs in October, a very strong showing that makes an interest-rate increase by the Federal Reserve much more likely when policy makers meet next month.
he report on hiring and unemployment, released Friday by the Labor Department, was eagerly anticipated on Wall Street, where traders and economists have been sifting each new bit of economic data for any augury of the central bank’s course.
The unemployment rate dipped to 5.0 percent, from 5.1 in September.
At this level, the unemployment rate is close to what would normally be considered the threshold for full employment by the Fed and many private economists.
However, the so-called slack that built up in the labor market after the recession has altered traditional calculations of how far unemployment can fall before the job market tightens and the risk of inflation rises.
This week, Janet L. Yellen, the chairwoman of the Fed, told a panel on Capitol Hill that an increase in December was a “live possibility” if the economy continued to perform well.
Still, Ms. Yellen left herself and the rest of the Open Market Committee of the Fed plenty of wiggle room, emphasizing that no decision had been made on whether to raise rates for the first time in nearly a decade. Indeed, they will have an additional jobs report for November in hand by the time they gather for their last meeting of the year, on Dec. 15 and 16.
While some other economic statistics, including the recently released preliminary third quarter Gross Domestic Product numbers, seemed to suggest that the economy may still be suffering from some of the same weaknesses that we saw during the summer which caused the Federal Reserve to delay an expected rate increase in September, and again in October. If these numbers are indicative of the data that the Fed is looking at, though, then they would arguably go ahead with the rate hike they’ve been hinting at for the better part of 2015 and which, to be frank about it, is probably well overdue given the fact that interest rates have been at largely unsustainable historic lows for the past six years or more. It likely wouldn’t be a large increase, of course, but it would be significant given the amount of time that has elapsed since the last saw the Federal Reserve increase rates even slightly.
Beyond Federal Reserve policy and Wall Street, of course, we’re now at the point where the state of the economy is likely to start having an influence on the races for the White House, Senate, and House and the manner in which the candidates approach the issues. In that regard, the American Enterprise Institute’s Jim Pethokoukis posed these points on Twitter after the report was released:
Again, GOP couldn’t beat Obama with 8% unemployment. Can they beat Hillary when it’s 4% next November?
— James Pethokoukis (@JimPethokoukis) November 6, 2015
Jobs booming. Silicon Valley buzzing. “Crippled America,” like Trump says, or “charred remains” like Huck says? — James Pethokoukis (@JimPethokoukis) November 6, 2015
Quite often, of course, voters perceive the economy based more on their personal economic situation than on economic statistics or what might be happening in Silicon Valley or other sectors of the economy. Nonetheless, Pethokoukis, who is a conservative working at a conservative think tank, raises valid points about the impact that the state of the economy could have on the election next year if these numbers are harbingers of a trend, and how exactly Republicans would be able to square their message that the Obama Administration has hobbled the economy with information that suggests the economy is, in fact, doing quite well as we enter the seventh year of the recovery from one of the biggest economic downturns the United States had experienced since the Great Depression.