In October 2016, the US unemployment rate fell fractionally to 4.9% from 5.0% in September. This was in-line with market expectations. The US unemployment rate moved steadily lower from a peak of 10% in late 2009, but has trended mostly sideways in the past year (see chart attached). Unfortunately, the labour market participation rate eased back in October to 62.8%. Overall, the relatively low unemployment rate is still somewhat misleading given that the participation rate remains extremely low by historical standards (see chart attached); but at least the participation rate has been trending slightly higher over the past year.
Non-farm payrolls rose by a slightly disappointing 161 000 jobs in October 2016. The market was expecting a gain of around 173 000. The change in total nonfarm payroll employment data for the previous two months was revised up by a substantial 44 000 jobs. Over the past 3 months, job gains have averaged 176 000 per month. The level of US employment is now 6.52 million above the peak prior to the global financial market crisis. During the financial market crisis the US lost a total of 8.7 million jobs. Consequently, the US has created more than 15 million jobs since the financial crisis ended.
The private sector added 142 000 jobs in October 2016, after gaining a revised 188 000 jobs in September 2016. The private sector has gained employment in 79 out of the past 80 months at an average of 193 000 jobs a month and is at a record high, comfortably surpassing the previous peak in January 2008.
During 2010 as a whole, the US economy created 1 066 000 jobs, or an average of 88 800 jobs per month. In 2011, the job gains averaged a far more respectable 174 000 a month, while in 2012 job gains averaged 179 000 a month. In 2013 employment rose by an average of 193 000 jobs a month, suggesting that although the labour market was still struggling to gain significant upward momentum, the rate of increase remained encouraging. In 2014 employment rose by a very impressive monthly average of 251 000 jobs, but then slumped somewhat to an average gain of 229 000 in 2015, hurt by the especially weak job reports in March and September 2015. Over the past 10 months, job gains have averaged 181 000 per month.
Key changes in employment per industry during October 2016:
- Health care employment rose by 31 000 in October. Within the industry, employment growth occurred in ambulatory health care services (+19 000) and hospitals (+13 000). Over the past 12 months, health care has added 415 000 jobs.
- Employment in professional and business services continued to trend up in October (+43 000) and has risen by 542 000 over the year. Over the month, a job gain occurred in computer systems design and related services (+8 000). Employment in management and technical consulting services continued to trend up (+5 000).>
- In October, employment in financial activities continued on an upward trend (+14 000), with a gain in insurance carriers and related activities (+8 000).
- Employment in other major industries, including mining, construction, manufacturing, wholesale trade, retail trade, transportation and warehousing, information, leisure and hospitality, and government, changed little over the month.
The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in October. Average hourly earnings for all employees on private nonfarm payrolls rose by 10 cents to $25.92, following an 8 cent increase in September. Over the year, average hourly earnings have risen by 2.8% (see chart attached). While wage growth is still low by historically standards, it is at least still trending modestly higher, providing welcome support to consumer spending.
The latest employment report is very encouraging despite the slightly lower than expected job gains. This is because, as we have highlighted in recent months, it would be normal for the economy to add progressively fewer jobs as the system nears full employment. On that basis, the job gain of 161 000 in October following a revised job gain of 191 000 September can be considered solid. Secondly, the upward move in wage growth to 2.8%y/y (the highest annual growth rate in many years) suggests that labour market conditions continue to tighten and that there is slowly emerging some upward risk to US inflation. Thirdly, the upward revisions to the previous two months data is meaningful. Lastly, there is some evidence to suggest the US is starting to add jobs more meaningfully in higher paying sectors of the economy. Consequently, the only real disappointment in this month’s employment report was the slight fall-off in the labour market participation rate. Overall, the employment report for October suggests that the US labour market continues to expand at a solid pace. From the Federal Reserve Bank’s perspective the latest employment data will most likely further encourage them to hike rates by another 25bps on 14 December 2016.
Please follow our regular economic updates on twitter @lingskevin
Download the presentation slides