Financial Review

August Jobs, meh.

Sinclair Noe — September 1, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

Subscribe: Android | RSS

DOW + 39 = 21,987
SPX + 4 = 2476
NAS + 6 = 6435
RUT + 8 = 1413
10 Y + .04 = 2.16
OIL + .12 = 47.35
GOLD + 3.60 = 1325.40

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The economy added 156,000 jobs in August, missing expectations for around 180,000. The unemployment rate rose a tick to 4.4% from 4.3%; last month’s rate was a 16-year low.

The government cut its estimate of new jobs created in July to 189,000 from 209,000. June’s gain was trimmed to 210,000 from 231,000. A net loss of 41,000 jobs in the revisions. The US have averaged 185,000 new jobs a month since June — more than twice as many as needed to put all the new people entering the labor force each month to work. August marked the 83rd straight month of U.S. job growth, the longest such streak on record.

The data mark the seventh straight August that the government’s initial payrolls print has missed the median estimate of economists; the figure has been revised upward in five of the past six years. The trend may be explained in part by a seasonal adjustment process for the new school year. For one thing, August is the second most popular month for vacations.

As a result, businesses are slower to respond to the government’s survey on how many workers they employed or hired. True to form the initial response rate last month was 70%, marking the lowest of 2017. By contrast, the average rate of response from January through July was 76.5%.

Government employment reportedly fell by 9,000 last month but many economists are skeptical. Labor Department bean counters try to adjust for seasonal swings in educational employment in August and September but they often miss the mark.

Not surprisingly, the preliminary estimate for August has undercounted the number of new jobs by an average of 50,000 a year. So, even though today’s report was bad, it wasn’t anything to get bent out of shape about. Not yet anyway – let’s see how the revisions go.

The report may represent the cleanest reading on the labor market for several months, as Hurricane Harvey’s fallout in the Houston region begins to affect the data in coming weeks. While the storm may depress payrolls at first, jobs will probably get a subsequent boost as construction and utility workers help rebuild housing and infrastructure.

The Labor Department data are based on surveys that reflect payrolls and Americans’ work status for the week that includes the 12th of the month. Harvey made landfall on Aug. 25. So, we can expect a negative impact to the September report.

Yet even after the creation of millions of new jobs during the current recovery and the lowest unemployment rate in a decade and a half, worker wages still aren’t rising all that rapidly. Pay rose 0.1% in August to an average of $26.39 an hour. Wages have risen 2.5% in the past 12 months, unchanged from July.

Pay usually rises 3% to 4% a year at this stage of an economic recovery, but a slew of factors including global competition and the retirement of higher-paid baby boomers may be holding wages back. Average workweek for all workers fell to 34.4 hours from 34.5 hours (forecast was 34.5 hours).

A so-called hidden reserve of unemployed Americans may also be keeping wages down. A broader measure of joblessness, the U-6, or underemployment rate, was 8.6 percent for a third month; U-6 includes part-time workers who’d prefer a full-time position and people who want a job but aren’t actively looking.

Employees working part-time for economic reasons fell by 27,000 to 5.26 million. was flat at 8.6%, but the U-6 rate hovered below 8% shortly before the 2007-2009 recession. More Americans who’ve been out of work for long periods are rejoining the labor force in light of a near record number of job openings.

Private employment increased by 165,000 (forecast was 172,000) after a 202,000 advance; government payrolls fell by 9,000. In August, manufacturers, construction firms and health care providers account for more than half of all the hiring.

Manufacturing added 38,000 jobs. Construction jobs rose by 28,000, the most since February; retail hiring was up 800, the first increase since January; leisure and hospitality was up 4,000 following a 58,000 gain.

Professional and business services added 40,000. Financial Activities added 10,000. Transportation added just under 2,000.

Manufacturing was a shining star in today’s report, posting one of the best months in a long time. The average workweek for production workers increased by a tenth of an hour to 42.1 hours, while average overtime also increased by a tenth to 4.4 hours.

Aggregate number of hours worked by production workers jumped by 0.7%, the most in three years. Hiring was particularly strong in the motor-vehicle sector, where employment rose by 13,700 on a seasonally adjusted basis, the most since February 2014.

August is always the strongest month for hiring in autos, as the plants resume full-scale production after a summer lull for retooling. On a not-seasonally adjusted basis, hiring in autos was 30,000 in August, the best since 2013. All this is great news for a beaten-down manufacturing sector.

The Institute for Supply Management’s manufacturing index surged to a six-year high in August at 58.8%. The employment index also hit a six-year high. Maybe we are starting to see an upturn in manufacturing, or maybe we are seeing some statistical noise. Give it a month or two.

Last month, when the jobs number came in at 209,000 (revised lower today) and the unemployment rate hit a 16-year low, the White House press secretary (I think it was Sean Spicer) claimed White house credit for the strong jobs report. I haven’t heard any announcement from the White House for today’s jobs number. That tells you something about the disappointing number today.

What it really tells us is that the White House really isn’t the all-important force behind job growth in the economy, certainly not this early in the administration. At this point, the things the administration has or has not done, have had little impact on the broader economy.

There are many ways that political leaders can affect the economy, but right now the federal budget has not changed and won’t for at least another month. Tax and spending policies have not changed from last year, and there are no Trump appointments to the Federal Reserve, so monetary policy has not changed from a political standpoint. Think of the economy as a big ship, a really big ship; it does not turn on a dime.

Job growth has averaged 170,000 new positions per month since February, the first full month of the administration. That is below the 208,000 new positions per month in the last six months of 2016. The slower pace of job creation should not be surprising – it is part of the business cycle. With the unemployment rate at 4.4%, employers are somewhat constrained in finding the right candidates to fill open positions.

Meanwhile, wage growth was stagnant in the August report, up just 0.1% – this is not normal at this point in the cycle. As the labor market tightens, we would expect wages to increase. We have been expecting wages to increase for over a year. It hasn’t happened.

Wages grew 2.5% year-over-year, which is right where it has been for a few years now (give or take a little), but well below normal going back a couple of decades. Millions of workers remain on the sidelines. Many of those workers have just left the market – the retiring baby boom generation is once again having a profound impact on the economy – this time the labor market, but that is not the only factor.

The labor force participation rate for 25-54-year-old workers dropped by 0.3% to 78.4% – this bit of data represents people in their prime working years. We still have people on the sidelines, or maybe working in the gig economy and not showing up in the official numbers – hard to tell which – but the result is still slack in the labor market.

Traders now assume a 30 percent chance of a rate increase when Fed policy makers meet in December, down from a 50 percent chance a few weeks ago. The Fed is set to meet later this month, but is not expected to raise rates.

That is not just today’s jobs report but also consider the PCE gauge of inflation which came in at a 1.4% rate in yesterday’s report – well below the Fed’s target of 2%. Given the usual uncertainties that are attached to these monthly numbers, this report should not change expectations of an economy that, in the absence of a major policy effort out of Washington, tracks a real growth path of around 2 percent with muted inflation.

It will, however, solidify market expectations of a continued dovish Fed, including a lower endpoint for the neutral rate and a longer path to get there, along with a very gradual contraction of the balance sheet. Janet Yellen’s best bet might be to just phone it in until February.

One wild card in the second half of 2017 will be gasoline prices. The surge following Hurricane Harvey’s devastation in Texas will leave less money for consumers to spend on other goods and services.

On Friday morning, the average price for regular gasoline nationwide was $2.52, a 7-cent increase from Thursday. Prices have risen 15 cents a gallon in the last week, and the current price is 30 cents above the national average for regular gasoline a year ago. Over the course of a year, every penny increase is equivalent to a $1 billion tax on consumers.

Financial Review

June Jobs Report

Sinclair Noe — July 7, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

Subscribe: iTunes | Android | RSS

DOW + 94 = 21,414
SPX + 15 = 2425
NAS + 63 = 6153
RUT + 15 = 1415
10 Y + .02 = 2.39%
OIL – 1.19 = 44.33
GOLD – 12.80 = 1213.20
BITCOIN +0.28% = 2528.40 USD
ETHEREUM – 3.63% = 243.61

The US added 222,000 new jobs in June. The unemployment rate rose from 4.3% to 4.4%. After three months of disappointing jobs reports, the June number easily topped expectations of around 175,000. The unemployment rate rose as more people entered the labor market. The labor-force participation rate inched up to 62.8 percent, from 62.7 percent.

Hiring was also stronger in May and April than previously reported. April was revised up from 174,000 to 207,000, and the change for May was revised up from 138,000 to 152,000.  Revisions added 47,000 more jobs to April and May than previously reported. Over the past three months, job gains have averaged 194,000 a month. Over the past 12 months, the economy added 2.24 million jobs.

Hourly pay rose a 0.2% to $26.25 an hour in June. Wages have advanced a modest 2.5% in the past 12 months, up slightly from the prior month but still well below the usual gains at this late stage of an expansion, and below expectation. Companies continue to find ways to restrain labor costs. Average hourly earnings are a key measure of potential inflation pressures.

The U6 unemployment rate rose two-tenths of a percentage point to 8.6 percent last month. U6 is a broader measure of unemployment, which includes people who want to work but have given up searching and those working part-time because they cannot find full-time employment.

This alternative measure of unemployment hit a 9-1/2-year low in May. It has declined eight-tenths of a percentage point this year. The measure known as people working part-time for economic reasons rose by 107,000 to 5.33 million.

Employment gains were broad in June, with manufacturing payrolls rising 1,000 after factories lost 2,000 jobs in May.

But the automobile sector lost a further 1,300 jobs as slowing sales and bloated inventories forced manufacturers to cut production. The auto sector has lost jobs for three straight months. Ford Motor has announced plans to cut 1,400 salaried jobs in North America and Asia through voluntary early retirement and other financial incentives. General Motors will extend summer assembly plant shutdowns, which will leave workers temporarily unemployed.

Construction added another 16,000 jobs last month. Healthcare employment surged by 59,100, while the professional and business services sector created 35,000 jobs. Temporary-help jobs, a harbinger of future hiring, increased by 13,400. Restaurants and bars hired 29,300 workers.

Mining and logging gained 8,000 jobs – mining includes oil drilling and oilfield services. There has been a tick-up in jobs in coal mining — one of the industries that Trump has targeted for regulatory relief — yet the gain has been minuscule, just over 2,000 since a low point in August of last year.

Retailers hired 8,100 workers, a respite for a sector which had shed jobs for four straight months. Department store operators like JC Penney, Macy’s and Abercrombie & Fitch are struggling with stiff competition from online retailers led by Amazon. Wholesale trade added 10,000 jobs.

Government employment rebounded by 35,000 jobs last month, with gains at federal and local governments. That means private sector employment grew at a more modest 187,000 for June. During the first five months of Trump’s term, the economy has added 821,000 private sector jobs, and 42,000 public sector jobs; this represents a turnaround from the prior 8 years, when the economy lost 268,000 public sector jobs.

June has been the strongest month for job growth over the three previous years, followed by July and November.  This is the 4th consecutive solid job gain in June:  304,000 in June 2014, 206,000 in June 2015, 297,000 in June 2016, and now 222,000 in June 2017. It makes sense.

In June and July, we see new graduates moving into the labor market. Also, weather conditions are favorable for construction and mining and other industries. Also, a strong seasonal tendency for leisure and hospitality. These factors might explain the small bump to 62.8% in the labor force participation rate, the percentage of the working age population in the labor market.

However, it doesn’t look like we are really pulling people off the sidelines. There is still a strong demographic consideration as baby boomers retire; the labor market may be solid but the availability of jobs and weakness in wages is not enough to pull boomers out of retirement. And most boomers who retire are leaving reasonably good paying jobs, to be replaced by younger, less experienced workers who will pull down smaller paychecks.

Meanwhile, employers continue to complain about the lack of skilled workers, or for low-skill, low wage jobs, the complaint is a lack of willing workers. Supply and demand would indicate higher wages.

By most measures the economy is strong and the labor market seems healthy. Jobs are popping up all over the country. Last month, the unemployment rate hit the lowest level in 16 years. Yet wage growth has been anemic. The pay that workers take home has risen a little since the depths of the recession, but not much.

Once you factor in inflation, wages growth is so low that workers are hardly better off than they were a year ago. Given strong job growth and low unemployment, and the strength and duration of the economic recover – wages should be rising faster by now.

As the economy continues to heat up and companies create more job opportunities, employers should eventually have a harder time finding the caliber of workers that they want. To attract good workers, companies in theory have to start offering pay increases.

As we move into the 9^th year of the economic recovery, wage growth stands at 2.5%, the same as in 2009, when the unemployment rate was 10% – more than double the current rate.

One explanation for weak wage growth is that productivity has been sluggish. But blaming productivity for slow wages is not a full explanation. Workers are not lazier than before. Some point a finger at policies that have failed to encourage investments in machinery and technology to explain low productivity.

Also, a dramatic decline in unionization in recent decades has left workers less able to bargain with company owners for pay increases. At the same time, globalization has allowed companies to be more mobile than ever before. If labor gets too expensive in one location, companies can just move.

Sluggish wage growth tells us that there’s still a fair amount of slack left in the labor market. So, if we filter out retiring workers, and younger people staying in school, we see the 25 to 54 participation rate was unchanged in June at 81.7%, and the 25 to 54 employment population ratio increase to 78.5%, still significantly below where it was in 2007 and for most of 2008.

So where are all those working age people? What are they doing? Just sitting around? Nope. They are probably working, just not regular jobs, or at least not regular jobs in the regular sense.

As companies cut jobs and benefits, many workers found their own work and set their own hours. Not just Uber drivers, but also as independent contractors, sometimes working with previous employers. Sometimes entrepreneurs starting up their own business.

One of the biggest changes was in healthcare. Employers didn’t want to pay for it. Workers could now get insurance through the ACA exchanges, and they no longer had to stay in otherwise unfulfilling careers because their full-time jobs gave them access to health insurance benefits.

Recent statistics from Treasury Department show that one in five people who accessed health insurance from the exchanges created by the ACA were business owners or self-employed.

The 2016 presidential campaign included lots of discussion about the jobs in factories and mines – jobs that have be vanishing for decades – while almost entirely overlooking the explosion of freelance work that will account for 40 percent of the U.S. workforce by 2020, according to some estimates. That’s 60 million Americans. Even if the number is less, it is probably much more difficult to measure than traditional jobs, and likely under-represented in the government stats.

The lack of wage growth is not just important for workers, it also matters for policy makers because it has the potential of feeding into inflation – which has eluded the Fed’s 2% target – and progress on that front would play a role in determining the pace of interest-rate hikes by the central bank. The Fed has noted that they have essentially achieved full employment and are forecasting a pickup in inflation, so maybe the Fed is looking at the gig and freelance economy in their calculations.

While wages were a weak spot in the June report, it still marked a relatively strong finish for the labor market in the second quarter. That should support continued gains in consumer spending in the coming months and probably keep the Fed on track with plans to start reducing their balance sheet and increase borrowing costs once more this year.

Right now, the consensus is that the Fed will start trimming their balance sheet in the next couple of months, that would coincide with the FOMC meeting in September. They will start gradually and increase the sales incrementally. That would leave December for the Fed to hike interest rates for the third and final time this year.

The Fed wants to get back to more normalized settings, and the June jobs report was solid enough for the Fed to continue tightening, but it also points to slack with weakness in wages. And the mere fact that the economy added 222,000 jobs, this late in the recovery suggests slack.

You can’t add workers to your payrolls if there are no workers to take those jobs. It would be a mistake to make too much of one month’s numbers, but for now the numbers support optimism that the labor market has room to get better and with higher wages for more workers.

Financial Review

April Jobs Report

Sinclair Noe — May 5, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

Subscribe: iTunes | Android | RSS

DOW + 55 = 21,006
SPX + 9 = 2399
NAS + 25 = 6100
RUT + 8 = 1396
10 Y – .005 = 2.35%
OIL + .89 = 46.41

Today is a Jobs Report Friday. The economy added 211,000 net new jobs in April. The unemployment rate dropped to 4.4% from 4.5% in March. This was a better than expected report. The consensus estimate was for 190,000 jobs.

The March report was weaker than expected, initially reported at 98,000 jobs, it was revised even lower today – down to just 79,000.

So, the big question heading into this report was whether March was a fluke, was it just a single, off month? And the answer is, yes. So, to smooth out the numbers, we can look at the first four months of the year and the average job growth is 185,000 new jobs per month, right in line with the average for 2016.

So, this was a good report. The reaction on Wall Street was muted, even as the Nasdaq and the S&P 500 closed at record highs. Bonds were flat. The yield curve between two-year notes and 10-year notes flattened to 103 basis points, from 105 basis points before the data.

The U-6 unemployment rate dropped to 8.6% from 8.9%. The U-6 includes unemployed plus underutilized or underemployed workers, people who are working part-time but would like to be working full-time. The U-6 is now at its lowest level since November 2007. The headline rate, the U-3, is at its lowest level in more than a decade and close to the lowest level in 16 years.

The unemployment rate fell by 0.1 percentage points, but this was in part because fewer people were looking for work. The labor participation rate fell slightly to 62.9 percent last month from 63 percent; this indicates that the labor market is not strong enough to pull potential workers off the sidelines.

The labor force participation rate for workers age 25 to 54, the prime working years, rose to 78.6, but still a bit low historically. This means many people have not participated in this jobs recovery. Certainly, demographics are at play. The boomers are retiring. Younger workers may be staying in school longer, rather than being tempted into the workforce.

But it likely includes workers who have been marginalized, out of work so long that it is now difficult to get a job, or scrimping along on part-time work. We’ve seen some increase in labor market fluidity, meaning people leaving one job for another, (median job tenure fell from 2014 to 2016 after rising steadily since 2000).

In recent days, we have seen a couple of real estate reports showing single family home prices still have not recovered from the downturn, meaning that many people are not able to move to change jobs.

Jobs gains were broad, with basically all sectors posting at least a few new jobs. Leisure and hospitality added 55,000 jobs. Employment in professional and business services continued to trend up in April (+39,000). Employment in health care and social assistance increased by 37,000 in April.

Financial activities added 19,000 jobs. Employment in mining rose by 9,000 in April (this sector includes jobs in oil exploration and drilling and support and there were even a few coal mining jobs added) Employment in other major industries, including construction, wholesale trade, transportation and warehousing, information, and government, showed little change over the month.

Manufacturing managed to add 6,000 jobs, nothing to crow about. The retail sector slashed jobs in February and March, cutting 56,000 positions over the two months combined and contributing to fears of a “retail apocalypse.” So, it was a relief to see retailers add jobs in April, albeit only 6,000 of them.

The retail industry has lost as many jobs in the past few months as there are in the entire coal industry. Among the major worker groups, the unemployment rate for adult men declined to 4.0%, adult women 4.1%, teens at 14.7%, Whites, 3.8%, Blacks 7.9%, Asians 3.2%, and Hispanics 5.2%.

The average workweek for all employees on private non-farm payrolls increased by 0.1 hour to 34.4 hours in April. In manufacturing, the workweek edged up by 0.1 hour to 40.7 hours, and overtime edged down by 0.1 hour to 3.2 hours. The average workweek for production and non-supervisory employees on private non-farm payrolls edged up by 0.1 hour to 33.7 hours.

In April, average hourly earnings for all employees on private non-farm payrolls rose by 7 cents to $26.19. Over the year, average hourly earnings have risen by 65 cents, or 2.5 percent. Just enough to keep pace with inflation, meaning real income barely budged.

Employers keep complaining about a shortage of workers, but they don’t seem to be willing to pay enough to attract them. At some point, a tight labor market should result in higher wages but it hasn’t happened yet. In a healthy economy, we would expect to see wages growing at 3.5-4 percent.

Over the past year, the unemployment rate has fallen sharply for those with only a high school degree or those with less, and that trend continued this month. The long-recovery has also led to a decline in the long-term unemployed, and a sharp decline in people working part-time jobs who would prefer full-time work but it hasn’t necessarily lead to an increase in wages.

The Economic Policy Institute published a report yesterday on the Class of 2017, finding young high school graduates on average are still paid less than they were in 2007 (adjusted for inflation), while the average wages of young college graduates have finally surpassed the 2007 level. “Yet the economy of 2007 is a low bar for economic opportunity.

Relative to the full employment economy of the late 1990s and 2000, the shares of young graduates who are unemployed and underemployed, and generally “idled” by the economy (neither working nor in school), are still quite high.” For young high school graduates, the unemployment rate is 16.9 percent (compared with 15.9 percent in 2007 and 12.1 percent in 2000).

You may or may not be surprised to discover that more than 60 percent of all private sector jobs created in this recovery have been in low-paying service industries of the economy. It may be more surprising to know that this share is lower than during the prior two labor market recoveries. This is perhaps the most disappointing development of the current cycle.

In the wake of the financial crisis, job losses were so high that getting people who lost their jobs back into the workforce hasn’t required a good deal of cajoling on the part of employers. Although wages have strengthened over time, it’s been a painfully slow process.

The general lack of business dynamism in this recovery has been well-documented. The Bureau of Labor Statistics, for example, shows that the number of jobs created by new businesses (those less than one year old) has declined from upwards of 4 million in 1994 to 3 million in 2015, partly because of a slow rate of new business formation.

Whether this has been related to a lack of credit availability or an increased regulatory burden (likely both), the fact is that small- and medium-sized businesses (those with less than 500 employees) have not led the pack in hiring throughout much of this expansion, which is quite abnormal. A recent and encouraging development, then, has been the long-awaited emergence of hiring among small employers.

April marked the 79th straight month of job growth, by far the longest such streak on record. The U.S. has added 15 million jobs over that period, nearly 200,000 per month. When the streak began in October 2010, the unemployment rate stood at 9.4 percent, and it would have been higher if government economists counted the millions of Americans who had stopped looking for work; today, the unemployment rate has fallen so far that many economists question how much lower it can go.

Perhaps more remarkable than the recovery’s length has been its resilience. Time and again, one or two weak months of hiring have sparked fears that the recovery was nearing its end; time and again, job growth rebounded. The past two months are a good example: Hiring slowed sharply in March, when employers added just 79,000 jobs, but quickly rebounded in April.

There are still weak spots in the job market, even after six and a half years of growth. Wages are rising, but their recent growth has been disappointing. At this late stage of the recovery, it is reasonable to think wages would be higher.

This might represent a significant shift in how we think about wage growth and wage push inflation. There are signs of trouble in the retail sector, where hiring has been weak. And joblessness remains high among certain groups, such as young black men.

It’s unclear how long the strong job market will last. The current economic recovery, which dates to mid-2009, is already among the longest since World War II. And hiring could slow even if the recovery continues: The Federal Reserve has been raising interest rates to prevent inflation, which could also lead to reduced hiring.

Fed Chair Janet Yellen gave a speech today at her alma mater, Brown University. Her chief point: America needs better policies to encourage more women to work full careers. Sustained careers could help narrow the gender wage gap and boost growth overall. Women working full-time still earn about 17% less than men per week, Yellen said.

Even when comparing men and women in the same job positions with similar backgrounds, the wage gap is 10%. Yellen has a good point. Even though the jobs recovery has been long, it has not yet reached out to everyone.

Financial Review

March Jobs Report

Sinclair Noe — April 7, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

Subscribe: iTunes | Android | RSS

DOW – 6 = 20,656
SPX – 1 = 2355
NAS – 1 = 5877
RUT +0.14 = 1364
10 Y + .03 = 2.37%
OIL + .65 = 52.35
GOLD + 2.20 = 1254.80

The economy added 98,000 net new jobs in March, far fewer than expected. The unemployment rate dropped from 4.7% to 4.5%, and that is the lowest level in 10 years.

The January report was revised lower, from 238,000 to 216,000. And the February report was revised lower, from 235,000 to 219,000; or a loss of 38,000 jobs from earlier reports.

A more accurate measure of the pace of hiring, the three-month average, shows the US is adding 178,000 jobs a month so far in 2017. That’s down slightly from 187,000 a month in 2016 and well below the recent high-water mark of 250,000 a month in 2014.

In March, the year-over-year change was 2.13 million jobs. Decent job growth. Despite weakness in March, the labor market is healthy, and it would be difficult to maintain a hiring pace above 200,000, at least for any length of time.

There are a couple of explanations for the weak number – and it basically boils down to statistical noise. February was unusually warm and pleasant weather for much of the country, resulting in a surge of hiring, especially for construction jobs. In March, the East Coast was hit by a blizzard during the time when researchers were gathering data. There will be revisions to the March numbers, so it is too early to call a trend.

Economic growth has been steadfastly sluggish, not matching the strong jobs numbers from January and February. So maybe it was just a reversion to the mean. The latest report will only add to the debate over whether so-called soft data, like stronger sentiment among businesses, is actually prompting companies to hire more workers.

March’s data suggests it is not. The weak headline number is also a stark reminder that it will be difficult to add significantly more new jobs to the economy at this late stage in the jobs recovery. It is highly unlikely that the US will start adding 300,000 to 400,000 new jobs each month. Not gonna happen.

The change in the jobs numbers really is the best single number to understand the state of the economy. While it has a lot of month-to-month statistical variance, it is a reliable indicator — especially if you average a few months together — of whether the economy is growing, contracting or stagnant.

Now, with the jobless rate at 4.5 percent, the binding constraint is the number of available workers; and that is a combination of demographics, skills, and pay. The demographics boil down to birthrates, death rates, retirement rates for the boomer generation, plus immigration.

The skills are constantly evolving and employers are constantly bemoaning the lack of skilled workers; yet as much as they complain, there has been a movement away from job training programs which were once the forte of unions. And the wages component – if wage growth were stronger, you would expect it to have the positive effect of pulling people on the bench into the labor force.

People who don’t see the value in working for $10 an hour might do so for $15. Wages are rising, but slowly, grudgingly. The Federal Reserve may think we are near full employment but wages do not confirm that stance.

Hourly earnings for the average American worker rose 0.2% to $26.14 an hour. And the increase in hourly pay over the past 12 months slipped to 2.7% from 2.8% in the prior month. Although wages are rising faster now compared with a few years ago, they still aren’t increasing as much as they normally do in periods of economic prosperity. In good times, wages tend to rise 3% to 4% a year.

The retail sector continued to contract, with department stores in the process of closing up to 3,500 stores . About 29,700 retail jobs were cut in March, and the clear majority were from department stores that sell everything from furniture to vegetables. Meanwhile, online retailers, the big competitors to physical stores, gained 2,200 jobs. Retail also lost 30,000 jobs in February, so we are seeing a trend develop.

And hiring in the construction industry almost came to a standstill, just 6,000 new jobs, after a huge gain in February. It was the second warmest February in the US since the 1890s. Meanwhile, March roared in like a lion, and the bad weather was likely a factor in hiring for many sectors, not just construction.

Most of the hiring was concentrated in white-collar professional jobs, with 56,000 jobs. Health care and education added 16,000. Mining, which includes oil production – added 11,000. Also, 11,000 new jobs in manufacturing. Manufacturing accounts for only 9 percent of employment but punches above its weight, because factory jobs pay considerably more than many service positions.

In recent months, blue-collar fields like manufacturing and construction have been very solid, a sharp contrast with late last year when service industries like education, business services and health led the way.

Private payrolls increased by 89,000 – which means government added 9,000 jobs. It also means there is a big disconnect between today’s report and Wednesday’s report on private job growth from ADP, which showed 263,000 new private sector jobs.

There are 1.69 million workers who have been unemployed for more than 26 weeks and still want a job. This was down from 1.80 million in February. This was the lowest number since 2008. The U6 unemployment rate dipped from 9.2% in February, down to 8.9%, the lowest level in almost 10 years.

U6 measures unemployed plus underutilized workers, or workers who are working part-time for economic reasons. Of course, many of those part-time workers would like full-time jobs – so this indicates that there is still slack in the labor market.

Part-time work is still a contentious alternative for many workers. There were some 5.6 million involuntary part-time workers in March 2017, little changed from the month before, but down from 6.4 million a year earlier, per the Bureau of Labor Statistics. That number is up from 4.5 million in November 2007, but off the peak of 8.6 million in September 2012.

These figures are almost entirely due to the inability of workers to find full-time jobs, leaving many workers to take or keep lower-paying jobs. And 54% of the growth in these involuntary part-time jobs between 2007 and 2015 were in retail, leisure and hospitality industries, per the Economic Policy Institute, a nonprofit think-tank in Washington, D.C.

The EPI report found a prolonged “structural shift toward more intensive use of part-time employment.” Aside from the frequent lack of sufficient work hours, these part-time workers must also “navigate unpredictable and/or variable hours,” with their work schedules varying week-to-week at a rate more than double that of full-time workers.

What’s more, part-time workers suffer from a lower rate of pay and benefits coverage than full-time workers, such as access to health insurance and paid time off. Compared to similar full-time workers, men working part-time earn 19% less and women working part-time earn 9% less per hour.

Involuntary part-time workers tend to earn less than their voluntary part-time counterparts. Approximately 40% of involuntary part-time workers report a total family income of less than $30,000, compared with just 18% of voluntary part-timers and 29% of the population.

Part-time workers who can’t find full-time jobs struggle to earn enough money to get by, even when they have multiple jobs. More than four out of every five involuntary part-time workers say it’s hard to save for retirement and about seven out of every 10 say they earn less money than they and their family need to get by and pay bills.

The persistence of such large numbers of involuntary part-time workers is an indicator of underlying weaknesses in the labor market, and the weak hand of labor in the labor market. Involuntary part-time workers are twice as likely as voluntary part-time workers to be forced to work on weekends and holidays, and to be given unfavorable work schedules and job assignments.

More than half of Americans (53%) are burned out and overworked, per a survey of more than 2,000 workers by Staples Advantage, a division of office supplier Staples. One reason for this exhaustion does not look like it will be changing anytime soon.

Some 34% of workers took a vacation last year, down from 42% the year before, according to a separate survey of more than 2,000 American adults released in February 2017 by Skift using Google Consumer Surveys. (Nearly 40% only took 10 days or less.)

One theory: Roughly one in four workers don’t get any paid vacation from their employers. Many are low-income workers and are the least able to afford to take an unpaid vacation day. Under The Fair Labor Standards Act, the US is also one of the few developed countries that does not require employers to provide paid time off.

The Labor Force Participation Rate was unchanged in March at 63.0%. This is the percentage of the working age population in the labor force.   A large portion of the recent decline in the participation rate is due to demographics. The participation rate for workers age 25 to 54 (considered the prime working years because people are out of school and too young to retire) was unchanged in March at 81.7%.

Overall, the March jobs report was disappointing but hardly a disaster. Remember that over 8 years ago, the economy was hemorrhaging about 800,000 jobs per month. In March, we added 98,000, and the unemployment rate has been more than cut in half at 4.5%.

Financial Review

February Jobs Report

Sinclair Noe — March 10, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

Subscribe: iTunes | Android | RSS

DOW + 44 = 20,902
SPX + 7 = 2372
NAS + 22 = 5861
RUT + 5 = 1365
10 Y – .02 = 2.58%
OIL – .84 = 48.44
GOLD + 3.70 = 1205.50

The US added 235,000 new jobs in February, and the unemployment rate dropped to 4.7% from 4.8%. The consensus estimate was for about 210,000 new jobs.

The Bureau of Labor Stats said 238,000 new jobs were created in January instead of 227,000. December’s gain was trimmed to 155,000 from 157,000. In February, the year-over-year change was 2.35 million jobs. It was the 83rd straight month of job creation.

Over the past three months, including revisions announced today, monthly job growth has averaged 209,000, while year-over-year wage growth jumped up to 2.8 percent.

In February, average hourly earnings for private payrolls increased by 6 cents to $26.09, following a 5-cent increase in January. Over the year, average hourly earnings have risen by 71 cents, or 2.8 percent.

Hours worked was unchanged at 34.4 a week. The Labor Force Participation Rate increased slightly to 63.0% in February, indicating more people were in the labor pool. The U-6 unemployment rate, which measures unemployed workers, plus underutilized or part-time for economic reasons, dropped to 9.2% from 9.4%.

In February, construction employment increased by 58,000 (this was likely the result of a very warm month); employment in private educational services rose by 29,000; manufacturing added 28,000 jobs; health care employment rose by 27,000; employment in professional and business services continued to trend up in February, gaining 37,000 – the industry has added 597,000 jobs over the year; employment in mining increased by 8,000 in February; Government added 8,000 jobs, meaning private payrolls increased by 227,000 for the month.

Retail trade employment lost 26,000 jobs in February, following a gain of 40,000 in the prior month. First, retailers hired too many people for the holidays. Sales never came back in January and workers got pink slips in February. Sales have started off slow in the first quarter thanks to tax-refund delays.

As we reported yesterday, jobless claims are near a 44-year low. Recruiters and employers complain that qualified workers are scarce, pushing them to raise wages and strengthen benefits. Even lower-skill workers in some sectors are finding themselves in more demand.

Staffing agency Manpower North America’s annual survey of 2,200 hiring managers showed that 46 percent reported they had difficulty filling job vacancies in 2016, up from 32 percent in 2015.

Where you live and what you do for work can determine how bright your job prospects are. Those who reside in or near larger cities are receiving the highest gains, despite high housing costs. Large metropolitan counties have seen more than twice the annual wage growth of non-metropolitan areas, per the latest figures from the Bureau of Labor Statistics.

This jobs report marked the first full report for the Trump administration; the January report was based on data collected before the inauguration. White House press secretary Sean Spicer tweeted: “Great news for American workers: economy added 235,000 new jobs, unemployment rate drops to 4.7% in first report for @POTUS Trump.”

And while it was a good report, it is 3,000 fewer jobs than January. Technically, Spicer violated an obscure federal rule against federal officials touting public data too soon after the official release of the data; maybe Spicer can nominate that rule for deregulation.

The Drudge Report published a headline: “Great Again + 235,000”.  And then Trump retweeted the headline. But in the past Trump has called the same monthly report “phony” and a “hoax.” During a press conference in 2015, Trump said the unemployment rate, then at 5.1%, was phony and the real rate of unemployment was closer to 42%. In today’s press conference Spicer said Trump had told him, “They may have been phony in the past, but it’s very real now.”

And while the jobs report is an imperfect measure, it is the most accurate gauge of the labor market that we have. And while it is correct to credit or blame any given administration with specific numbers from the day of inauguration on, Trump did virtually nothing to affect the numbers.

By mid-February, Trump had done nothing that would have a direct impact on the economy. No changes to the tax code or federal spending had been enacted at that point. What about those jobs he saved at the Carrier air conditioning manufacturing plant? Well, that was great, but it was only about 1,000 jobs out of an economy with 146 million jobs – not enough to move the needle.

On the other hand, it is entirely plausible that increased consumer confidence and what some are calling animal spirits, is enough to persuade some business owners to start hiring; maybe animal spirits pushed home builders to hire 58,000 construction workers or maybe very warm weather across the country was enough; but attitudes still must be confirmed by current conditions.

And contrary to Trump’s claims that he inherited a mess, the economy, while far from perfect, is better. The 235,000 extra jobs that have Drudge and Trump so enthused are fewer than the results in four of the 12 months of 2016. The unemployment rate has hovered between 4.6 percent and 5 percent for 18 consecutive months, since September 2015.

Yes, President Trump deserves the credit for the economy’s performance from the day of his inauguration until the day he leaves office – as with all presidents. Trying to come up with a different way of measuring a president’s performance is likely to get too muddled. Yes, the economy is still benefiting from Obama’s presidency, but, these aren’t his numbers anymore.

The question is whether the numbers can be sustained. Can we see 300,000-plus new jobs per month? Can we see the unemployment rate drop to 4.5% or 4% or 3.5%? Where will we find qualified workers to fill those jobs of the future? Will employers finally have to pay for those qualified workers? Are the current numbers sustainable or is the economy at or near full employment?

Probably not, the recovery has been uneven and we should be able to add many more jobs. But can we add 2.35 million jobs or more in the next 12 months? And don’t forget, the Fed is tapping on the brakes.

The Federal Reserve has been wary of signs of wage-push inflation. Fed policy makers want to maintain control of inflation and so have begun to slowly raise rates, which makes borrowing and risk-taking more expensive. At the same time, the Fed wants to avoid putting the brakes on job hiring.

Today’s solid jobs report is the last major economic data before the Fed determines monetary policy at their FOMC meeting next Tuesday and Wednesday, and it appears to clear the way for an interest rate hike next week.

While hiring was robust and wage gains strong, the pace might not be fast enough to force the central bank to accelerate its timeline for future rate hikes from the current forecast of three. Dot plot expectations on rates for 2018 by Fed members could also tick higher.

For several years, back to Bernanke and including Yellen, the Fed has argued for fiscal stimulus. The Fed managed to goose Wall Street with Zero Interest Rate Policy and QE 1,2,3,4 – which avoided a meltdown, but it was never enough to get the economy firing on all cylinders. The economy is not a mess but it ain’t great.

Fiscal flow or government spending is flat year over year, and that’s causing economic growth to decelerate to zero. The forecast for first-quarter GDP growth is now down to 1.3%, and we’ll get that only if we’re lucky. It’ll probably be closer to zero.

And while Wall Street has been enjoying a dose of animal spirits, fiscal policy takes longer to sink in; tax cuts, deregulation, and infrastructure spending goes through committees and votes. We’ll be lucky to feel the impact in 18 months, if all goes smoothly; and there is no guarantee that things will go smoothly.

Meanwhile, the Fed is tapping the brakes. The transition from monetary policy as an economic driver to fiscal policy is difficult and can easily result in recession.

Rates will rise, prices will go up. If you have debt, you will pay more. If you want to buy something on credit, you will pay more, or you won’t buy it. Housing will become less affordable. Credit card purchases will be more expensive, you might want to keep that card in your wallet. A new car? Maybe not.

And that infrastructure spending the government is planning – it needs to be financed – and that financing will come at a higher rate, adding to the deficit. Treasury Secretary Steven Mnuchin sent letters to congressional leaders on Thursday asking them to raise the debt ceiling by midnight on March 15 to prevent the Treasury from needing to take “extraordinary measures” for the federal government to keep paying its bills.

This Sunday, at 2 AM, most of the nation will move its clocks forward one hour. Daylight Saving Time reminds us of the sun’s daily effect on our lives and tells us spring is on its way. A Department of Energy study found Daylight Saving, saves the nation about 1.3 billion kilowatt-hours, equal to the yearly energy used by more than 100,000 households.

However, not everyone agrees it offers energy saving benefits. Some studies claim the time switch saves energy on lighting but is surpassed by usage increases for heating and air-conditioning. In Arizona, we do not observe daylight-saving, we have plenty of sunshine in the summer and don’t need more.

Financial Review

Jobs Report Friday

Sinclair Noe — February 3, 2017

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

Subscribe: iTunes | Android | RSS

DOW + 186 = 20,071
SPX + 16 = 2297
NAS + 30 = 5666
RUT + 19 = 1377
10 Y + .02 = 2.49%
OIL + .55 = 54.09
GOLD + 3.60 = 1220.00

The economy gained 227,000 new jobs in January, up from 157,000 in December. The unemployment rate rose to 4.8% from 4.7%, mostly because more people were looking for work. Job openings are near a record high and that’s drawing a larger share of Americans back into the labor force.

Revised estimates from December and November cut 39,000 jobs from the total payroll increases. There were 157,000 new jobs created in December instead of 156,000. November’s gain was chopped to 164,000 from 204,000. Year-over-year in January, the economy gained 2.34 million jobs.

In January, hourly wages rose just 0.1% ( or 3 cents) to $26 an hour. The average workweek was unchanged at 34.4 hours. Slow growth in wages brought the year-over-year pace back down to 2.5%, after rising at a 2.9% clip in December.

And while that is higher than the 1.6% pace of inflation, we just aren’t seeing wage-push inflationary pressures, meaning wages are not causing inflation; suggesting there is still slack in the labor market.

Still, certain jobs and sectors are very tight indeed. Many small and medium sized businesses are facing labor shortages, especially for tech workers. And we are seeing a generational shift for skilled workers; such as mechanics and welders, and there have been some shortages because we got away from training and apprenticeship programs.

At the low end of the pay scale, local minimum wage increases – ranging from as little as 5 cents an hour in Florida and Alaska to $1.95 an hour in Arizona – affected approximately 4.3 million workers across 19 states in January.

The widest impact was felt in Arizona, California, and Washington, where more than 1 in 10 workers got a raise. Still, not enough to make a difference in wages, and apparently not a cause to cut back on hiring.

The causes behind the weak wage growth aren’t easily pinned down. While the government’s annual bench-marking process might have had some trickle-down effect, the turning over of the calendar year also could share the blame.

Bonus season probably results in some fluctuation in reporting on pay, with businesses revising those increases back down when end-year plans changed. The lower-than-expected reading on pay could also be attributed to the mix of jobs that were added, such as retail, which are generally low-paying jobs.

One possible reason for flat wages is the lack of labor mobility. Firm-specific wages are evidence of an uncompetitive labor market. After all, if workers could move freely between firms, that should equalize the pay workers of similar experience and education obtain across firms within an industry or geography.

And the further into the labor market you drill down, to workers in narrowly defined skill and experience groups, the more residual inequality is apparent. If you only have one firm where you can use your skills, a condition known as monopsony, the result is flat wages.

One reason for monopsony might be anti-compete clauses. Another reason might be that many people were locked into their homes in the Great recession, unable to move due to negative equity, resulting in a lack of labor mobility.

The share of working age adults in the labor force is still at historical lows. The labor force participation rate, or the share of working-age Americans who are employed or at least looking for a job, was at 62.9 percent in January, the highest level since September.

A broader measure of unemployment which includes discouraged workers and people working part-time but would prefer full-time, the U-6 unemployment rate rose to 9.4%. There are about 5.8 million unemployed or underemployed, and the number of people working part-time for economic reasons increased, suggesting there is still some slack in the labor market.

Manufacturing payrolls increased by 5,000 jobs, rising for a second straight month as the oil-related drag on the sector eases. Construction employment jumped 36,000, the largest increase since March, after December’s paltry 2,000 gain.

An unusually high number of people said poor weather in trades such as construction prevented them from working in December. Those jobs usually turn up, statistically speaking, in the following month.

Retail payrolls, surprisingly surged 46,000, the biggest rise since February. Retailers, including Macy’s, Sears, American Apparel, and Abercrombie & Fitch announced job cuts in January amid store closures. Department store sales are being undercut by online retailers, led by Amazon.com.

So why the bump in retail employment? Well retailers hired fewer people than usual for the holiday season, meaning they probably laid off fewer workers in January as well.

Financial activities added 32,000 jobs last month. Professional and technical services rose by 23,000. Employment in food and hospitality increased by 30,000. And health care added 18,000.

Government employment fell for a fourth straight month in January. Further declines are likely after the Trump administration enforced a hiring freeze on civilian federal government workers on Jan. 22.

The head of the Congressional Budget Office, Keith Hall told the House Budget Committee that this year’s federal deficit will drop to $559 billion, down from a deficit of $587 billion in fiscal 2016, but will explode to $1.4 trillion a year by 2027.

The deficits are expected to grow above 3% of GDP after 2019, in part because of an insufficient labor force associated with retiring baby boomers, and the continued growth in spending. The nonpartisan office based its projections on the assumption on current laws remaining in place; the agency does not speculate on the effect of proposed legislation on the deficit.

The January Jobs Report marks the end of the Obama Administration and the beginning of the Trump Administration tracking the labor market. And while Trump took credit for the jobs gained in January, it wasn’t that long ago that he declared the unemployment rate a phony, totally fictitious number. He claimed the real unemployment rate was not somewhere under 5% but rather closer to 42%; which is nowhere near reality.

Still, Trump has an almost valid point, even if his math is imaginary. Trump’s skepticism toward the unemployment rate is clearly rooted in political self-interest—if he treated the number as legitimate, he would have to acknowledge that the economy improved significantly under President Obama. By undermining public trust in government data, he also makes it harder for anybody to hold his administration accountable for the economy’s performance.

The new president promises his plans will create 25 million new jobs in the next decade. It would be the most jobs created under any U.S. president ever, topping even the nearly 23 million jobs added under President Bill Clinton during the boom years of the 1990s.

That won’t be easy, and it almost certainly will not happen. First, the population is aging; boomers are retiring; there just aren’t enough young workers to replace the boomers, certainly not without massive immigration. Next, automation is coming; robots will be doing more and more work. Robots are not counted in the Jobs Report.

Next, the rest of the global economy has slowed – it’s not just America. It won’t be easy to manufacture 4% growth in the US, while the rest of the world slogs along. Good luck, but don’t hold your breath.

Meanwhile, back to those fictitious unemployment numbers. Trump has a point; 4.8% unemployment rate is misleading; the economy is not nearly as rosy as that number would suggest. Like all economic indicators, it has shortcomings, and those weaknesses have grown more problematic since the Great Recession. If an administration wanted to benchmark its economic performance by focusing on a single headline statistic, this might be a good time to pick a new one.

Fortunately, the Labor Department has six different measures U-1 through U-6; the headline number, the number cited most often is U-3 which is now at 4.8%; a person is lumped into that category if they’ve looked for a job in the past 12 months but not in the past four weeks.

Known as discouraged workers, these people are included in a different jobless rate called U5, which is about one full percentage point higher than the official unemployment rate. Pick a number, any number, just realize that one number is apples, and the other is oranges.

Perhaps more important is if the Federal Reserve realizes that the U-3 rate of 4.8% does not mean we are at full employment. The labor market has changed, and will continue to change. And there is no reason to slow down job growth through monetary policy.

On Wednesday, the Fed kept its benchmark overnight interest rate unchanged in a range of 0.50 percent to 0.75 percent. It said it expected labor market conditions would strengthen “somewhat further”; which is exactly what happened. There’s still a very strong resistance from firms to pay higher wages.

There’s a gradual uptrend, but you’re not seeing rapid wage growth. The weak increase in wages means there is no problem with wage-push inflationary pressures. So, it doesn’t appear that anything in today’s Jobs Report will change the Fed’s gradualist policy path for rate hikes.

A little bit more news to cover today. President Trump signed executive orders to review the Dodd-Frank Wall Street reforms and halt a Labor Department rule designed to curb potential conflicts among brokers who give retirement advice. The Dodd-Frank executive order will ask the Treasury secretary to work with other regulators to determine what the administration can do to fix issues with measures issued under the 2010 Dodd-Frank Wall Street reform law.

The Labor Department’s retirement advice rule requires brokers to act as “fiduciaries,” or in their clients’ best interests, when they are advising them about their individual retirement accounts and 401K plans. A presidential order imposed a 180-day delay on the implementation of that rule.

The Trump administration also imposed sanctions on 25 individuals and entities, ratcheting up pressure on Iran in what it said were just “initial steps” and said it would no longer turn a “blind eye” to Iran’s hostile actions.

Financial Review

Jobs Report Friday

Sinclair Noe — November 4, 2016

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

Subscribe: iTunes | Android | RSS

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.