Private Payrolls Jumped in October and Wage Growth Accelerated

The labor market rebounded in October from the temporary effect of Hurricane Florence in September. U.S. nonfarm payrolls added 250,000 jobs in October, after an increase of just 118,000 new jobs in September. The modest September gain was revised down 16,000 from an initial estimate of 134,000 jobs. Combining the last two months with a 16,000 upward revision to August, the three-month average gain in payrolls, even with the distortions from hurricanes, came in at 218,000 in October. For the private sector, nonfarm payrolls added 246,000 in October following a gain of 121,000 in September. On a three-month average basis, private payrolls added 211,000, and over the past year, the average gain is 204,000 (see chart).

Goods-producing industries added 67,000 in October, ahead of the monthly-average gain of 58,000 over the past year. Durable-goods manufacturing and construction led with additions of 21,000 and 30,000 jobs, respectively, while nondurable-goods industries added 11,000. Within private service-producing industries, which typically account for the lion’s share of job creation, payrolls added 179,000 workers, led by a 47,000 gain in health care and a 42,000 jump in leisure and hospitality industries. Professional and business services posted a gain of 35,000 jobs for the latest month, below the 43,000 average over the past year, while transportation added 25,000 jobs in October.

The unemployment rate held for the second consecutive month at 3.7 percent, the lowest since December 1969. The labor force participation rate ticked up to 62.9 percent in October as 711,000 people joined the labor force. The participation rate briefly dipped to a cycle low of 62.3 percent in September 2015 but has been essentially trending flat between 62.7 percent and 63 percent since late 2013.

Average hourly earnings rose 0.2 percent in October, pushing the 12-month change to 3.1 percent, the fastest pace since April 2009. AHE growth has been very slow compared to previous cycles, especially given the low unemployment rate, but has been accelerating recently. That is good news for employees but could be a problem for employers.

Combining payrolls with hourly earnings and hours worked, the index of aggregate weekly payrolls rose 0.6 percent in October and 5.4 percent from a year ago. This index is a good proxy for take-home pay and has posted relatively steady year-over-year gains in the 3 to 5 percent range since 2010 but has now been above 5 percent for three straight months and six of the last eight months. Continued gain in the aggregate-payrolls index is a positive sign for consumer income and spending, supporting continued economic expansion.

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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.