Saints be praised!
The October employment report, released Friday—which Roman Catholics and most Protestant denominations celebrate as All Saints’ Day—was all that anybody could have hoped for, and more.
“Perfect” is how Evercore ISI summed up the numbers, which showed steady increases in the number of Americans working and continued moderate pay gains—which, in turn, is inducing more people to come off the sidelines and look for work.
Nonfarm payrolls rose 128,000 last month, much more than the 85,000 that economists had forecast after adjusting for the strike at General Motors. Automotive payrolls were off by 42,000 in October, while government employment fell by 3,000, owing to a reduction of 20,000 temporary Census workers. Moreover, the two preceding months’ tallies were revised up by a total of 94,000.
The unemployment rate did tick up—to 3.6% in October, from the half-century low of 3.5% touched in September—but that also was a sign of strength. The headline jobless rate, which is derived from a separate survey of households, reflected a continued surge of people entering the labor force. Of the 325,000 people who went looking for jobs last month, 241,000 found them.
That’s helped to lift the labor-force participation rate up to 63.3%, a solid gain from 62.8% six months earlier and 62.9% a year ago. The improvement in labor-force participation has been erratic in this expansion and has been “battling ongoing negative demographic trends as the labor force ages and older workers, who have lower participation rates, gain share,” writes Joshua Shapiro, chief U.S. economist at MFR.
The rise in the labor-force participation rate is a “game changer,” adds Evercore ISI. More people entering the workforce will lift the U.S. economy’s potential growth and allow it to continue to expand without creating inflation, the firm’s economists wrote in a client note. Strong employment growth among millennials—defined here as those aged 25-34—is helping to power a surge in household formations, two demographic forces they describe as “unstoppable.”
Average hourly earnings rose 0.2% in October, which Free Market Inc.’s Michael Lewis observes was held down by the absence of highly paid GM workers. The pace of pay gains also may be understated by demographics, as baby boomers retire at or near their peak career earnings while millennials enter the workforce at lower pay. The evidence on this hypothesis so far is anecdotal, however, and in need of data to prove it.
Robust job growth has also helped support consumer spending, which has helped the U.S. economy power ahead in the face of sluggish manufacturing and business investment. The softness in the factory sector was evident in the October ISM manufacturing index, which inched up 48.3, from 47.8 in September, a reading which set off recession worries a month ago. But it remains below the 50 mark that separates expansion from contraction in manufacturing, which largely is the result of the continuing U.S.-China trade tiff.
To be sure, the pace of hiring has slowed to an average 176,000 in payroll gains in the past three months. That still exceeds the pace of population growth, observes Capital Economics. But this is why the rise in labor-force participation is key to continuing the expansion.
For the Federal Reserve, the jobs report is further evidence the economy is “in a good place,” to use Fed Chair Jerome Powell’s phrase. He has emphasized the aim of keeping the expansion going to spread the jobs and pay gains more widely. At the same time, wage growth isn’t a cause for worries on the inflation front.
Investors greeted the jobs news by pushing the S&P 500 and the Nasdaq Composite to record highs. The Fed is providing a tailwind, having announced its third interest rate cut Wednesday—a contrast from last year when it was in a tightening mode with rate hikes. The central bank also has resumed expanding its balance sheet, a reversal of the shrinkage that was under way a year ago.
What’s missing is a resolution of the trade conflicts, which investors are hoping for, and indeed are anticipating. It wouldn’t take saints to perform that less-than-miraculous task.
Write to Randall W. Forsyth at randall.forsyth@barrons.com
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November 02, 2019 at 01:05AM
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This ‘Perfect’ Jobs Report Looks Like a Game-Changer - Barron's
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