Job gains put the labor market back on track. Last month we emphasized taking the long view on the labor market, which worked well. Meanwhile, wages were flat but should drift upward again in the coming months.
October Jobs Rebound 261,000: Solid Q4 Economic Growth
Nonfarm payrolls jumped 261,000 in October, with the three-month average at 162,000 jobs. Job gains are consistent with 2.5-3.0 percent economic growth in the fourth quarter, with steady consumer spending, better business investment and a likely FOMC December rate hike.
A rebound in jobs appeared for leisure & hospitality and professional & business services. Meanwhile, there were continued solid gains in education & health (top graph). Government jobs, both federal and state & local, have averaged 12,000 over the past three months. In the goods sector, manufacturing employment posted a strong gain (24,000) and is in line with its average over the past three months, while hiring in construction was up 11,000 jobs for a second straight month.
Wage Growth Stalls in October
After the strongest monthly gain of the expansion, average hourly earnings growth stalled in October. The weak read stemmed in part from the rebound in leisure & hospitality employment, which pays the lowest average wages among major industries. Wages also edged down or slowed across a range of industries, including construction and education & health services. Compared to last October, average hourly earnings are up only 2.4 percent versus a 2.7 percent year-ago pace this time in 2016.
Despite the setback last month, we still expect to see average hourly earnings strengthen in the coming months. In contrast to October, the survey week for November contains the 15th of the month, which tends to produce somewhat stronger monthly gains. The year-over-year reading should also get a boost with a relatively easy base comparison considering monthly earnings growth was flat last November. Beyond the monthly dynamics, wage pressures should continue to build with labor becoming increasingly scarce as indicated by a further drop in unemployment and under-employment.
Unemployment Measures Continue to Tighten
The headline unemployment rate continued to fall, reaching a cycle low of 4.1 percent. The last time the rate was this low was December 2000. Likewise, the U-6 measure of unemployment, which includes marginally attached workers and part time workers who want full time work, fell to 7.9 percent. This is a more comprehensive look of slack in the labor market and is now tied with the previous cycle’s low reached in December 2006.
The mean duration of unemployment remains at 26 weeks, which is higher than any level since 1982 and indicates structural issues persist, however. Finally, the labor force participation rate dipped in October to 62.7 percent and remains far below the average level of participation since 1990.
