Jobs Report Friday
DOW – 42 = 17,888
SPX – 3 = 2085
NAS – 12 = 5046
10 Y – .03 = 1.78%
OIL – .53 = 44.13
GOLD + 1.80 = 1305.00
The economy added 161,000 jobs in October; slightly below expectations of 175,000. The unemployment rate dropped to 4.9% from 5%. This was largely attributable to the 195,000 Americans that dropped out of the labor force, which brought the labor force participation rate down to 62.8% from 62.9%.
The government revised the September report to show 191,000 new jobs were created instead of a previously reported 156,000. August’s gain was raised to 176,000 from 167,000.
The 3-month average now stands at 176,000. Job growth has averaged 181,000 per month this year. In October, the year-over-year change was 2.36 million jobs. The U.S. economy has been adding jobs for 73 consecutive months.
Taking into account population growth and an aging work force, economists at the San Francisco Fed estimated the “break-even” point — growth that is sufficient to keep the jobless rate from rising — now ranges from 50,000 to 110,000 jobs a month. Federal Reserve Chairwoman Janet Yellen said the U.S. economy needs to create 100,000 net new jobs monthly to absorb new entrants to the labor market.
The biggest lingering weakness in the employment picture is in the millions of people who have left the labor force entirely — not just in October, but over the last seven years. Only 59.7 percent of American adults were employed in October, down from 62.9 percent at the start of 2008.
A big part of that decline is demographic: baby boomers hitting retirement age. But millions of people dropped out of the labor force entirely during and after the recession and have not returned to the work force.
Meanwhile, the employment-to-population ratio for prime age workers reached 78.2 percent, its highest level since 2008; and that was one of the best numbers in this month’s report; it is up a full percentage point in the past year.
Now, it still indicates that there is some slack in the labor force – this number could climb to over 80%, but still it is solid. Also, the 25 to 54 participation rate increased in October to 81.6%, an indication that the demographics of the workforce is changing, with older workers retiring and younger workers filling available jobs.
And thus, we are starting to see some increase in wages…, finally. Average hourly earnings climbed by 0.4% during the month, which was better than the 0.3% gain expected. This measure of wages is growing at a 2.8% pace year-over-year. The average U.S. employee earned $25.92 an hour in October, up 10-cents.
Non-managers — what the BLS calls “production and non-supervisory employees” — saw their earnings rise a more modest 2.4 percent, but they too are seeing gains that are running well ahead of inflation. With the PCE inflation gauge at 1.7%, most workers are seeing real gains in wages; for most workers, this means money in the bank.
For much of the past seven years of the economic recovery, the focus has been on just adding jobs, now we are starting to see a shift, where the jobs are a slightly better quality. Most of the employment gains in the past year have been in full-time jobs. Employers are starting to realize they need to pay better to attract and retain good workers. As workers earn wages, they will spend more, creating a virtuous cycle through the economy.
Meanwhile, the prospects of job seekers are improving: More than one in four unemployed workers found a job in October. The so-called job-finding rate fell early this year but has since rebounded. ZipRecruiter, which distributes job postings primarily from small and midsize businesses, reported a substantial jump in listings last month.
The October report showed the average workweek was unchanged at 34.4 hours. Typically, the work week goes down when there is a natural weather event such as Hurricane Matthew, although I have not seen anything to show the hurricane adversely affected job growth.
Health care companies, white-collar professional outfits, and financial firms led the way in job creation. The manufacturing sector lost 9,000 jobs last month. The retail sector lost 1,000 jobs last month. Retailers hired seasonal workers in October at a slower pace than the last two years.
Typically, retail companies start hiring for the holiday season in October, and increase hiring in November. This might be an early indicator of the holiday shopping season. Private payrolls increased 142 thousand. Government added 19,000 jobs.
A broader measure of unemployment, known as the U-6, fell to 9.5% from 9.7%, touching the lowest level since May 2008. The so-called U-6 rate includes part-timers who can’t find a good full-time position and discouraged job-seekers who’ve recently given up looking for work. Even as full-time positions have increased, nearly 6 million Americans are working part-time because they can’t find full-time work, a figure that has stalled out over the past year. At the same time, we are seeing a major shift in how people work.
The winners and losers in the economy have traditionally been easy to identify. If you had a full-time job, you won. A full-time job provided the steady income needed to support our traditional version of the American Dream. A full-time job was also the only way to access important employer-provided benefits, such as health insurance and a pension, as well as protections against workplace injuries, discrimination, and harassment. Whereas a part-time job was on the fringes of the labor market.
One of the things workers learned in the downturn was that a full-time job was not a guarantee of job security. This, in turn, led to more workers engaging, whether involuntarily or voluntarily, in the gig economy. And it turns out the gig economy is just fine for many workers.
Workers with specialized skills, deep expertise, or in-demand experience win in the gig economy. They can command attractive compensation, garner challenging and interesting work, and secure the ability to structure their own working lives. On the other end of the spectrum, retail and service workers currently in low-skill, low-wage jobs can also win in the gig economy.
Consider – a driver for Uber is basically a taxi driver; they are contractors with low pay and no benefits, no overtime or minimum wage, and no access to unemployment insurance. But there are many more people willing to be Uber drivers than taxi drivers, in part because they can control when and how much they work.
There will always be bad jobs or low-paying jobs – the gig economy doesn’t change that reality. However, the gig economy gives low-skill workers a way to move from bad jobs to better work. It’s not a sufficient change, but it’s moving in the right direction.
Atlanta Fed President Dennis Lockhart in a speech this morning, called the jobs report a “solid” outcome. The Fed has been signaling for months that it intends to raise interest rates in December. Fed officials believe that the unemployment rate is close to the level where inflation may spike if rates don’t move up. The central bank said earlier this week that it is just waiting for “some” further evidence of a tightening labor market and rising inflation.
In his speech, Lockhart said the central bank was likely to tighten only “very gradually.” Dallas Fed President Robert Kaplan said in another speech that the case for a rate hike was strengthening and Fed Vice Chairman Stanley Fischer said the labor market is strong and the central bank could overshoot its goals.
The most recent data on inflation shows “core” PCE, the Fed’s preferred inflation measure, rose 1.7% year-on-year in October. In October, average hourly earnings rose 2.8% over the prior year, the fastest pace since the recession; this means workers are seeing actual improvement in earnings, for the first time in a long time.
This means the Fed is going to be concerned about inflation, and will have a hard time justifying low rates, better suited for an emergency. It doesn’t necessarily mean the Fed should raise rates, but it likely means they will.
The S&P 500 fell nearly 0.2 percent and extended its losing streak to nine sessions, the longest in almost 36 years. During that streak, the index has fallen nearly 3 percent. Although I tend to believe Wall Street was more concerned with the upcoming election than the jobs numbers.
Friday’s jobs report is, of course, the last one before the presidential election on Tuesday. The Trump camp called the October jobs report “disastrous,” adding that the report, “underscores the total failures of the Obama-Clinton economy that delivers only for donors and special interests and robs working families.”
As a Democrat, Clinton benefits from continued positive news out of the US economy given that voters and markets likely see her administration continuing the economic policies of President Obama. And while economic growth as measured by GDP has been middling at about 2%, the labor market has been notably strong during Obama’s time in office.
The October job numbers will have a large effect on the election. Most voters already know what they think about the economy and whom to credit or blame for it.
So, here are some cold, hard numbers, compliments of CalulatedRiskblog: The Obama administration has added 11,243,000 private sector jobs (and is on pace for 11,864,000); the George W. Bush administration posted a net loss of 396,000 private sector jobs; the Clinton administration added 20,966,000; George H.W. Bush administration added 1,510,000; the Reagan administration added 14,717,000; and the Carter administration added 9,041,000 private sector jobs.
The main message from the payroll report: Millions of Americans have gone back to work since the last recession. Now they’re finally getting some decent pay raises.