Macro November 01, 2019 / 01:36 pm UTC

In-Depth Research: Implications of U.S. October Employment - Strong Excluding Special Factors; Even Stronger With Revisions

By David Sloan

October's non-farm payroll print is unexpectedly strong, and with revisions, it suggests that trend has slowed less than previously thought.

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The employment trend appears to have stabilized or even marginally accelerated in recent months. The current pace of job creation is consistent with an economy at least growing near potential. Given that the main risk to the economy was that trade-generated weakness would spread to employment, which would undermine the consumer, a still-healthy labor market suggests that near-potential growth can continue in the near term.

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Non-farm payrolls increased by 128 thousand in October, but excluding 46,000 strikers at GM and 20,000 census workers who left temporary positions, the increase was 194 thousand. Upward revisions totaled 95,000, with both August and September seeing increases through revisions. Private payrolls increased by 131 thousand and by 177 thousand excluding strikers, the strongest private payroll gain excluding strikers since April. Private payrolls' upward revisions totaled 94,000, with September now at 167 thousand and August at 163 thousand. The 3-month private payroll average excluding strikers is 169 thousand, up from 121 thousand in July.

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Manufacturing payrolls fell by 36,000, but rose by 6,000 excluding autos and by 10,000 excluding strikers. Construction payrolls rose by a modest 10,000, but this does not reflect the recent impressive revival in housing. Aggregate hours worked fell in both manufacturing and construction (a dip in the average manufacturing workweek only includes the average workweek for those not on strike), but the overall workweek held steady at 34.4 hours.

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Leisure and hospitality, which had been very weak from February through July, led the recent improvement in private sector services, including this month's revisions. Some of the recent improvement in seasonally adjusted payrolls may reflect easier seasonal adjustments. However, this also suggests that the slowdown in hiring in the spring, which is usually heavy hiring season, may have been due to a shortage of available workers.

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The unemployment rate remains low, even if it corrected higher to 3.6% from September's nearly 50-year low of 3.5%. The unemployment rise came from a 325 thousand increase in the labor force. Employment in the household survey increased by 241 thousand and outperformed payrolls for the sixth straight month. While non-farm payrolls are correcting from the slowdown seen from spring through early summer, the household survey is correcting in a more dramatic fashion.

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However, the tightness of the labor market is having some impact on wages, with average hourly earnings up by a weaker-than-expected 0.2% (0.21% before rounding). If looking at upward revisions to August and September though, which are only visible before rounding, the net increase is 0.32%. Not even the earnings data are weaker than expected after revisions, but y/y growth is unchanged at 3.5%.

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Analyst Certification
I, David Sloan, the lead analyst certify that the views expressed herein are mine and are clear, fair and not misleading at the time of publication. They have not been influenced by any relationship, either a personal relationship of mine or a relationship of the firm, to any entity described or referred to herein nor to any client of Continuum Economics nor has any inducement been received in relation to those views. I further certify that in the preparation and publication of this report I have at all times followed all relevant Continuum Economics compliance protocols including those reasonably seeking to prevent the receipt or misuse of material non-public information.