Headline nonfarm payrolls rose by 161,000 in October, versus an anticipated 173,000. Meanwhile, September’s data point was revised upward to 191,000. The unemployment rate decreased to 4.9%, while the participation rate was lower at 62.8%. There was a rise of 425,000 in the group classified as “not in the labour-force,” following a decrease of 207,000 in September. The U6 unemployment rate (an expanded measure of unemployment that takes into account marginally attached and part-time workers) was lower at 9.5% in October. The household survey showed a decrease of 43,000 jobs in the month, following a rise of just 354,000 in September. Meanwhile, the adjusted household survey (the BLS’s attempt to make it more comparable to the payroll survey) pointed to an decrease of 83,000 after a fall of 609,000 in September.
Private nonfarm average hourly earnings were 0.4% higher in October (0.2% for production and nonsupervisory workers) after a 0.3% rise in September. Annually, they are now 2.8% higher, the highest since June 2009 (2.4% for production and nonsupervisory workers, down from 2.7%). This increase suggests a little more upward pressure is taking place as the labour market tightens further. Private aggregate weekly hours for production and nonsupervisory workers were 0.1% higher in the month, after 0.2% in September; they are 1.3% higher on a year ago. The 161,000 change in October’s payrolls was largely due to education and health services (52,000), professional and business services (43,000), government (19,000), and finance (14,000). There was a decline in payrolls for the manufacturing sector (9,000) and retail jobs (1,000). Meanwhile, the mean duration of unemployment was again lower at 27.2 weeks, from 27.5 weeks in September.
Similar to the last employment report, the market sensitivity around this report is relatively low, in that not only is there one more employment report to be released before the next FOMC meeting, but it would also take a very weak report (and/or election volatility or financial market disruption) at this point to deter the Fed from increasing interest rates at its December meeting, the current probability of which is now 78%. In general, activity in October was fairly middling—not too hot, nor too cold. The majority of jobs growth in the last year has been going toward professional and business services, healthcare, and retailing. The fact that nonfarm payroll growth is still running around its current levels (i.e., 196,000 in the last 12 months, and 179,000 in the last 6 months) at this point in the economic cycle is very positive, particularly when jobs growth of only around 80,000-150,000 is needed to keep the unemployment rate heading lower. The decline in the participation rate was a bit of a disappointment in this report; however, it has been making some steady progress over the last year. Meanwhile, the continued large gap in the employment-to-population ratio indicates that there is still likely to be enough slack in employment to allow the unemployment rate to move lower without sparking a major inflationary outbreak—i.e. there still seems to be room to allow the economy to run a little hot for a while.
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Richard de Chazal, CFA is a London-based macroeconomist covering the U.S. economy and financial markets.