October Employment Report Suggests the Economy Is in a Marathon Not a Sprint

By Robert Hughes

As the effects of hurricanes in August and September start to fade, the labor market is returning to steady, albeit slow, gains. U.S. nonfarm payrolls added 261,000 jobs in October, a strong rebound from the hurricane-restrained increase of just 18,000 new jobs in September. The modest September gain was revised up by 51,000 from an initial estimate of a loss of 33,000 jobs. Combined with a 39,000 upward revision to August, the three-month average gain in payrolls, even with the distortions from hurricanes, came in at 162,000 in October (see chart), just slightly below the 183,000 average since the beginning of 2010.

Goods-producing industries added 33,000 in October, in line with the average gain over the past year. Durable-goods manufacturing and construction led with additions of 19,000 and 11,000 jobs, respectively. Within private service-producing industries, which typically account for the lion’s share of job creation, payrolls added 219,000 workers, led by a 106,000 jump in leisure and hospitality industries. However, that jump offset a 102,000 loss in September. Professional and business services posted a gain of 50,000 jobs for the latest month, ahead of the 45,000 average over the past year, while health care added 34,000 jobs in October, ahead of its 12-month average gain of 31,000.

The unemployment rate fell again in October, dropping to 4.1 percent, the lowest since 2000. The decline was accompanied by drops in all three broader measures of underemployment as well. However, the labor force participation rate also fell in October, declining to 62.7 percent from 63.1 percent in the prior month. The participation rate had been slowly drifting higher since hitting a cycle low of 62.4 percent in September 2015, and remains well below the 66.0 percent rate that prevailed for the 2004 through mid-2008 period.

Despite the low unemployment rate of 4.1 percent, average hourly earnings were unchanged in October, resulting in a 12-month gain of just 2.4 percent. For production and nonsupervisory workers, the gain is just 2.3 percent. Gains in average hourly earnings have been well below gains in previous cycles (see chart). Increases in consumer prices have also been slower during this expansion, making gains in real hourly earnings somewhat stronger relative to historical nominal gains. The average length of the workweek was unchanged at 34.4 hours in October.

Combining payrolls with hourly earnings and hours worked, the index of aggregate weekly payrolls rose 0.1 percent in October and 4.0 percent from a year ago. This aggregate measure has posted relatively steady year-over-year gains in the 3 to 5 percent range since 2010. In prior cycles, this measure tended to be more cyclical, hitting growth rates in the 7 to 8 percent range but then collapsing (see chart). The slower and relatively steady marathon-like gains in the current expansion may prove to be more beneficial as it may help sustain the economic expansion over a longer period compared to the more cyclical sprint-like gains of previous economic expansions.

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Robert Hughes

Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.