Economic Update

Steve Scranton

Economic Update-Gross Domestic Product

Jobs continue to be created in the US but at a slower pace. The Bureau of Labor Statistics (BLS) reported a slowing in jobs growth in October. The nation added 150,000 jobs in October compared to 297,000 in September. The BLS also revised lower the data for the past two months. As a result, the surprisingly robust results that were originally reported are not quite so robust after all. The net revision over those two months was a reduction totaling 101,000. The BLS indicated that 33,000 jobs were lost due to the autoworkers' strike. Without that event, the nation would have added 183,000. That is still a slower pace. The strike is now resolved so November's data should see a boost as workers return to work. Women accounted for 80% of the jobs filled as employment of women increased 140,000.

Summary

Top Four Industries for Jobs Growth

The top two industries for jobs growth in October accounted for 93% of total jobs growth. Private Education & Health Services led the way with 89,000 jobs created. Health Services accounted for the vast majority of growth in this category as Health Services added 77,200 jobs.

Bottom Five Industry Sectors for Jobs Growth

Five industries experienced job losses led by manufacturing. Of the 35,000 jobs lost in manufacturing, 33,200 were lost in the automotive industry. As discussed above, this was related to the UAW strike which has now been resolved.

Establishment Survey

From an income standpoint, the news was also less positive. Average hourly earnings growth slowed from a 4.4% annualized rate in September to 4.1% in October. From the Federal Reserve's perspective this pace is still too fast. The average worker continues to see the amount of hours that they work decrease. The average work week fell from 34.4 hour to 34.3 hours. Last October, the average worker was working 34.6 hours. The average worker did not gain additional income via more overtime either. Average overtime hours fell from 3.0 hour to 2.9 hours. As a result, average weekly earnings in October fell compared to September. Average weekly earnings fell from $1,167.19 per week to $1,166.20 per work. That does not help the average worker keep pace with rising expenses. On a year-over-year basis, average weekly earnings rose 3.2% while inflation rose 3.7%.

Household Survey

The Household Survey showed a far different story. The Household Survey showed a decrease of 348,000 people becoming employed compared to September and the number of unemployed rose by 146,000. In addition, the labor force fell by 201,000. This resulted in the labor force participation rate falling from 62.8% to 62.7% and the unemployment rate rising from 3.8% to 3.9%.

The Household Survey also showed signs of stress beneath the surface of the headline news. The number of people working part-time for economic reasons rose 218,000. That is broken down by 189,000 people working part-time because of slack work or business conditions and 29,000 working part-time because they could only find part-time work. As I have discussed previously, a pattern often seen in the past is businesses first cut prices if sales start to slow. Then they cut hours, then the cut jobs. We need to monitor this situation since we are now seeing evidence of hours being cut and jobs being cut in some industries. In another sign of potential financial stress for the average worker, the number of people working multiple jobs rose by 205,000. On a year-over-year basis, the number of people working multiple jobs has increased by 866,000. 

For those people who were already unemployed, the news was not encouraging. The average duration of unemployment rose from 21.5 weeks to 21.6 weeks. The percent of people who have been unemployed for 27 weeks or more rose from 19.1% to 19.8%.

Conclusions

• October's employment report showed clear signs of jobs growth slowing. Even factoring out the auto strike, the pace clearly slowed.
• There are clear signs of stress for some workers given the decline in the average weekly earnings from September to October plus the rise in part-time workers for economic reasons and the increase in the number of people working multiple jobs.
• The Federal Reserve cannot be encouraged by the decline in the labor force. The Federal Reserve believes the labor market is too tight which is sustaining the above 4% wage growth. From the Federal Reserve's perspective, this creates the risk that businesses continue to try to pass through the higher wage expenses in the price of their goods and services. That is not how you bring the inflation rate down.
• October's employment data probably keeps the Federal Reserve on pause from raising interest rates again but leaves the door open if the above 4% wage growth keeps the inflation rate from further declines.