October jobs rebound from effects of hurricanes

Steve Benen has the October jobs report. U.S. job market bounces back in a big way in October:

After September’s job totals, heavily affected by Hurricanes Harvey and Irma, were the worst for the U.S. in seven years, the question on the minds of many was whether the job market would bounce back in October.

This morning, we received the answer. The Bureau of Labor Statistics reported that the economy added 261,000 jobs last month, making it the best month for job creation so far this year. The unemployment also improved, ticking down a notch to 4.1%.

October Jobs


Just as I predicted last month …

The revisions from the previous two months also pointed in an encouraging direction, with an additional 90,000 jobs added to the totals from September and October.

So the record streak of seven consecutive years of continuous monthly job gains begun under President Obama continues nine months into the Trump administration.

Providing some additional context, the U.S. added 2.36 million over the first 10 months of 2014, 2.19 million over the first 10 months of 2015, 1.92 million over the first 10 months of 2016, and 1.68 million over the first 10 months of 2017.

Here’s another chart, this one showing monthly job losses/gains in just the private sector since the start of the Great Recession.

October Private

While the top-line number looks good, economist Jared Bernstein reports, October jobs report: Nice bounce back on payrolls, but labor force down and wage growth stalled.

Payrolls bounced back strongly from last month, up 261,000, while the unemployment rate ticked down to 4.1%, its lowest rate since 2000. However, the jobless rate fell for the “wrong” reason: a sharp decline in labor force participation. Other labor market indicators suggest a mixed report, with a tightening job market, a solid trend in payroll gains, but stagnant wage growth. Though convention wisdom is that the US labor market is at full employment, I’d say that’s wrong (see last figure). We’re getting there, for sure, but based on wage and inflation trends, we’re not there yet.

Revisions to the prior two months added 90,000 to the payroll count; September’s hurricane-induced loss of 33,000 was revised up to an 18,000 gain. Still, October’s spike is partially a rebound from the low September number and much as we discounted that month’s result, so must we discount October’s bounce-back. Note, for example, that employment in food services and drinking places–a weather-sensitive industry–increased by 89,000 in October after falling by 98,000 in September.

To squeeze out the impact of these outliers and gets a better sense of the underlying trend, monthly smoother takes this approach as well, showing average gains over 3, 6, and 12 month periods. The fact that all the bars are around the same height shows that payroll gains are averaging around 160K-170K per month, a growth rate that is certainly fast enough to continue to legitimately drive down the unemployment rate.

Smoothers

However, as noted, last months decline in unemployment was due to 765,000 people leaving the labor market, which drove the participation rate down by 0.4 of a percentage point, a large monthly loss. To be sure, this is a noisy number and could be quickly reversed. In fact, I would expect a reversal as such exits are hard to explain in a job market that is clearly tightening. Also, the decline could be concentrated in older, retirement-age persons, though the participation rate for prime-age workers–25-54–also fell in Oct, from 81.8% to 81.6%. At any rate, these changes imply that at least part of the decline in unemployment was due to labor force exits.

The underemployment also fell sharply, from 8.3% to 7.9%, its lowest rate in this expansion. Part of this decline is also due to the lower labor force, but it is also due to a sharp monthly fall in the number of involuntary part-timers (those who’d prefer full-time work), another sign of tightening.

That said, a key signal that the job market is not yet at full employment comes from the wage trends shown below. As noted in my report from a month ago, wage growth was thought to be slightly biased up in September by the hurricanes, as lower-wage workers temporarily left the sample. For October, as you can see at the end of the figure, there was a negative bounce-back, so here again, trend extraction is essential. The figures below show yearly wage growth for all private sector workers and for blue-collar and non-managerial workers, with a 6-month moving average to pick up that trend.

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AHE-Prod-updated-768x624

They both show that, at least in these wage series, nominal wage growth has stalled out at around 2.5%. Other series show a bit more acceleration, but among those of us who closely track such trends, it is pretty widely agreed that there is less wage acceleration than we’d expect in what otherwise looks like a pretty high-pressure job market.

As the next figure shows, unemployment is notably below the Federal Reserve’s estimate of the “natural rate” – the lowest rate consistent with stable prices – but not only has there been little in nominal wage acceleration (the yellow line), but core inflation is Decelerating, and it remains well below the Fed’s 2% target. While I’m sympathetic to cautious Fed economists who worry about “de-anchored inflationary expectations” – though it’s worth noting that neither realized nor expected inflation give much support to such worries – we cannot write off these trends with hand waves about how spiraling prices must be around the next corner. We must be data driven, and the data are clearly suggesting that despite very low unemployment, we’re not yet at full employment. That means that even nine years into the expansion, too many workers are not benefiting as much as they should be from the growth they’re helping to generate, and this is problem that policy makers cannot ignore.

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5 Responses to October jobs rebound from effects of hurricanes

  1. Thank you again, AzBM, for your insightful presentation on the monthly jobs report. Your analysis is helpful to me in understanding what the report means. Your honest and balanced reporting is noteworthy and much appreciated by me.

  2. this is what voters in 2018 will be interested in not russian hacking. its the economy stupid. remember!

    • For Sure Not Tom

      We can do two things at once.

      We have a crime family living in the White House, they have to go.

  3. For Sure Not Tom

    The Obama economy is unstoppable.

    Happy Holidays.

    • I think there’s still significant slack in the labor market – more than is being reported in top-line figures, or even the second-tier numbers. Employers still have overwhelming power in hiring negotiations, able to solicit hundreds or thousands of applications for each job opening. There is still a massive amount of underemployment due to credential inflation – lots of people with Bachelor’s degrees working as a Starbucks barista or low level data-entry monkey. And it’s not just people with ‘useless’ underwater basket-weaving degrees in the liberal arts – I’d like to think that I have a useful skill set with two Master’s degrees in quantitative fields, but employers are still able to require 3-5 years’ industry experience for entry-level roles as a part of their job application process, and fill their positions.

      I think there’s going to be a real reckoning in 10-15 years when the Boomers start retiring en masse and there’s a lack of people to fill the mid- and upper-level positions because employers aren’t training as many people at the lower levels, instead preferring to poach their competitors and squeeze the work of 10 from 6 workers like they were able to during the height of the Great Recession when the fear of the Reserve Army of the Unemployed was front-and-center on every worker’s mind.

      Ultimately, I would say that when we start to see more employer training programs and some level of credential deflation, that would be a true sign of tightening in the labor market. With that said, though, there does seem to be significant tightness already in some isolated sectors, but I don’t think the labor market is nearly as tight as one might think right now.