Economic Update

Steve Scranton

The US jobs market continues to thumb its nose at the other economic data that is flashing recession warning signs. The Bureau of Labor Statistics (BLS) reported another solid month of job gains for the nation in October. Not only did the nation add 261,000 jobs last month, it also added an additional 29,000 jobs over the last two months due to revisions by the BLS. Although the headline news is solid, there are underlying signs of worry once you dig beneath the headlines as the labor force declined, the unemployment rate rose, the labor force participation rate declined and the number of people working multiple jobs rose.

Summary

Establishment Survey

All industry sectors, except Mining & Logging, added jobs in October. Mining & Logging was unchanged from September. Four out of the eleven industry sectors accounted for 71% of the jobs creation with Education & Health Services once again leading the pack.

Top Four Industries for Jobs Growth

Bottom Five Industry Sectors For Jobs Growth

Eight of the eleven industry sectors saw jobs growth in the single digits. The Mining & Logging sector was the weakest with an unchanged result.

The pace of wage increases continued to slow as average hourly earnings rose 4.7% on a year-over-year basis compared to 5.0% in September. Overall wage growth—as measured by average weekly earnings—slowed even more as overtime dropped and the average work week was unchanged. Average weekly earnings rose 3.8% after rising 4.1% in September. Overtime fell from 3.2 hours to 3.1 hours and the average work week remained unchanged at 34.5 hours. This was the third consecutive month of the average work week holding at 34.5 hours.

Household Survey

The Household Survey showed far different results than the Establishment Survey. Remember, the Establishment Survey measures jobs related details while the Household Survey measures people details.

The Household Survey showed the labor force declining by22,000 people. This caused the labor force participation rate to decline from 62.3% to 62.2%. The survey also showed the number of people employed fell by 328,000 and the number of people unemployed rose by 306,000. This caused the unemployment rate to rise from 3.5% to 3.7% The number of people not in the labor force grew by 201,000.

The good news is that the number of people working part-time for economic reasons declined by 266,000. What the data does not tell us is if that was because they were laid off and were part of the 306,000 increase in unemployed. The data also continues to show signs of financial stress for workers as 131,000 more people worked multiple jobs.

For those who were already unemployed, the news was not encouraging. The average duration of unemployment rose from 20.2% to 20.8% and the percent of people who have been unemployed for 52 weeks or more rose from 18.5% to 19.5%. This indicates that those who recently became unemployed were more successful at finding new work while the longer you have been unemployed, the harder it is to find a job.

Conclusions

• October’s employment report is encouraging in the fact that employers are filling more job openings. As I have stated in the past, new jobs create new income that is available for spending.
• October’s employment report may not be good news for those who are hoping for the Federal Reserve to slow its pace of interest rate increases. The Federal Reserve may view the solid jobs report as evidence that the economy can withstand its current pace of interest rate increases. The Federal Reserve will now be watching the inflation data released between now and their December meeting before deciding whether to maintain its 0.75% increases or slow to 0.50% increases.
• My recession warning is still in place. Jobs are only one part of the economic growth puzzle. I believe that, due to the aggressive and rapid increases in interest rates, the economy is being pushed towards a recession by the end of 2023. Consumers remain under increasing financial stress as evidenced by the large increase in the number of people now working multiple jobs.