The employment situation is a set of labor market indicators. The unemployment rate measures the number of unemployed as a percentage of the labor force. Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls. (Bureau of Labor Statistics, U.S. Department of Labor) Why Investors Care
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Highlights
Employment in October came in quite strong while wage inflation actually eased. Nonfarm payroll employment in October jumped 166,000, following revised increases of 96,000 in September and 93,000 in August. The October payroll increase was above the consensus forecast for an 80,000 boost in jobs. The initial September estimate of a 110,000 increase was revised down 14,000 and August was revised up 4,000 from the prior estimate of an 89,000 increase. For September and August combined, the net revision was down 10,000. The October gains in employment were in the service sector as both construction and manufacturing jobs continued to shrink.
On a year-on-year basis, nonfarm payroll employment rose 1.2 percent in October, unchanged from September.
Within the payroll survey, strength was in the service-producing industries which posted a 190,000 gain in jobs, following a 127,000 increase in September. Service-providing gains were led by professional & business services, up 65,000; leisure & hospitality, up 56,000; education & health services, up 43,000; and government jobs, up 36,000. However, retail trade fell by 22,000 and could be a concern for indicating business expectations for a slowing consumer sector. Interestingly, the financial sector is doing OK despite layoffs related to the problems with subprime lending.
Manufacturing fell a 21,000 in October, following a 17,000 decline in September. Construction is still reeling from subprime lending problems as jobs slipped another 5,000 after a 14,000 drop in September. Natural resources & mining edged up 2,000 for the latest month.
Despite the strong job growth, there was good news on the on the inflation front. Average hourly earnings advanced 0.2 percent in October, following a 0.3 percent rise in September. The September boost in wages was below the consensus forecast for a 0.3 percent increase. The average workweek in October was unchanged at 33.8 hours and equaled expectations.
But the manufacturing sector is looking sluggish not just in job levels but in overall labor hours. Aggregate hours in manufacturing fell 0.4 percent in October, following a 0.2 percent decline in September. The October decrease suggests a drop in industrial production for the month.
Turning to the household survey, the labor market remains tight as the civilian unemployment rate was unchanged from 4.7 percent in September and matched the consensus. Household employment came off a spike in September. Household employment fell 250,000 in October, following a 463,000 jump the prior month. The household survey has a much smaller sample size than the payroll survey and is more volatile. The labor force declined by 211,000 in October, while the number of unemployed rose a modest 38,000.
Today's report should make the Fed happy about its rate cut decision earlier this week as wage inflation slowed and there is room for the Fed to pause as it hinted it may do. Goldilocks may be back.
Nonfarm payroll employment in September came in relatively strong compared to recent months with a 110,000 gain, following a revised rise of 89,000 in August and a 93,000 boost in July. But with initial claims on a recent uptrend, job growth could slow notably in September. Wage costs are still a concern for the Fed as average hourly earnings increased 0.4 percent in September, following a 0.3 percent rise the month before. But the civilian unemployment rate edged up to 4.7 percent in September from 4.6 percent in August, indicating some marginal loosening of labor market tightness. The Fed's next FOMC meeting after October 30-31 is on December 11 and this jobs report and the one next month will play a key role in whether the Fed cuts interest rates in December.
Nonfarm payrolls Consensus Forecast for October 07: +80,000
Range: +10,000 to +110,000
Unemployment rate Consensus Forecast for October 07: 4.7 percent
Range: 4.6 to 4.8 percent
Average workweek Consensus Forecast for October 07: 33.8 hours
Range: 33.8 to 33.9 hours
Average hourly earnings Consensus Forecast for October 07: +0.3 percent
Range: +0.2 to +0.3 percent
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During the mature phase of an economic expansion, monthly payrolls gains of 150,000 or so are considered relatively healthy. In the early stages of recovery though, gains are expected to surpass 250,000 per month. |
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The civilian unemployment rate is a lagging indicator of economic activity. During a recession, many people leave the labor force entirely, so the jobless rate may not increase as much as expected. This means that the jobless rate may continue to increase in the early stages of recovery because more people are returning to the labor force as they believe they will be able to find work. The civilian unemployment rate tends towards greater stability than payroll employment on a monthly basis. It reveals the degree to which labor resources are utilized in the economy. |
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