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October Payrolls: A Changed Economy on an Unchanged Trend

Josh Wright, Chief Economist | Economist Corner
Friday, Nov 01, 2019

Headline Numbers

  • 128k rise in nonfarm payrolls, but after 95k in combined upward revisions to prior months, the 3-month average rose to 176k from a previously reported 157k.
  • 3.6% unemployment: a partial (and widely expected) retracement of the prior month’s drop.
  • 3.0% wage growth was also right on expectations. 

 Key Details

  • A changed economy responds differently to auto worker strikes: The big fear going into this report was that the strike at GM would take a bigger bite out of the headline. Instead, the manufacturing diffusion index actually *rebounded* to 43.4 from 40.8, despite the large job losses. That and the overall payroll headline show how much the labor market has changed in the last 20 years.
  • Labor market continues to sail forward despite it all: Stepping back from the GM strike distortion, the story of today’s labor market remains “slowing, but steady.” Private services payrolls have ranged between just 157k and 160k for three months, and the headline nonfarm payroll average stands at 176k – all well above the estimated long-term pace. The U.S. economy has changed, and it responds differently to auto worker strikes. We had plenty of reasons to believe that before, but this is a dramatic demonstration.
  • Hours worked bring extra assurance: It was impressive that average weekly hours held steady (34.4) despite the numerous headwinds many have feared, as well as the hiccup in manufacturing. Chalk that one up under “no news is excellent news.”
  • Household report looked strong, with only a few blemishes: Unemployment was pushed up (to 3.6%) by higher labor force participation (to 63.3%). The drop in long-term unemployed was offset by the rise in part-time employment and the under-employment rate (to 7.0% from 6.9%).
  • Wages rangebound: What more can we say about this puzzling perennial no-show? Given the above-trend job growth, there’s a strong possibility that we’re not at “full employment” after all… or maybe the combined effects of new contracts/intermediaries (contingent workers and temps), technology, demographics, and globalization have fundamentally changed the dynamics here as much as they seem to have changed the dynamics around factory strikes. Or all of the above. The good news here is that wage growth has reached and is sustaining a decent level, especially in light of soft inflation and recent indications that more of the gains have been going to lower-wage workers – who are more likely to spend their wage gains and support our consumer-driven economy. 

Takeaways

  • If anything, this report will stiffen the Fed’s intention to remain on hold: The only “material reassessment” going on now is how much relevance historical precedents from the 1990s really have for today’s economy. The 3-cut pattern for the “mid-cycle adjustment” looks partially like a convenient excuse for the Fed to stop cutting, with support from a lucky break in market sentiment. Consistent with Wednesday’s press conference, do not expect the Fed to go back into hiking mode any time soon, since a sustained upturn in either inflation, inflation expectations, or trade tensions seems remote. Indeed, shortly after the jobs report, Fed Vice Chair Richard Clarida said the central bank needs to see "accumulating evidence” that it's missing on its dual mandate to cut rates again.
  • Employers and job seekers: This candidate’s market is not going anywhere. All signs point to a slower, but resilient economy, supported by U.S. consumers. Markets and the Fed now seem to have turned a corner, and the parallels to the 2015-2016 manufacturing recession look more pronounced than ever. With so many uncertainties in the outlook, this is not a time for complacency, but it’s not a time to expect a big step down either.

about the author

As chief economist at iCIMS, an industry-leading provider of talent acquisition software, Josh Wright leads a team of data scientists in analyzing emerging trends in the U.S. labor market

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