In light of today’s release of the US October’s jobs report, Jeoff Hall, Managing Economist, Refinitiv, assigns an ‘A-’ grade to the overall report. See below analysis from Jeoff Hall.
Jeoff Hall, Managing Economist, Refinitiv says:
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“This was a very strong jobs report in several dimensions. Employment growth of 128k in October was 60% higher than the Reuters poll consensus (80k), and there was a net 95k upward revision to August and September payrolls. That means the 3-month average for growth in nonfarm payrolls was +176k, the strongest such average in seven months; the 6-month average rose to +156k, the best in four months. Keep in mind, October job growth was supposed to be reduced by about 50k due striking UAW employees at General Motors. If we add those back to what was reported, we had a 178k jobs increase in October, which would be the best initial report since June.
The unemployment rate returned to 3.6% in October from 3.5% (a 49.5-year low) in September, but that was because far more Americans joined the labor force last month. In fact, after declining by 770k in the first four months of 2019, the labor force has increased by 1.894 mn over the past six months, a very solid 2.3% annualized rate. Had the number of unemployed persons last month risen only 65k instead of 85k, the rounded unemployment rate would have remained at 3.5% in October.
Leisure and hospitality industry earnings
Growth in average hourly earnings was a bit disappointing at only +0.2% m/m, but that was due in large part to the loss in wages among automotive workers. Just like in the jobs tally, their wages should come back in November. The modest rise in average hourly earnings also came from a large influx of workers in the leisure and hospitality industry, the lowest-paid workers. Specifically, employment at food services and drinking places (i.e., restaurants) increased by 48k, raising average job growth in the industry over the past three months to 38k; in the first seven months of 2019, the average monthly gain was 16k.
Almost 50% (46.6%) of the 131k increase in private nonfarm employment in October came from a 61k increase in leisure and hospitality, the lowest-paying industry in terms of average hourly earnings. This industry also accounted for more than one-third of all growth in private nonfarm employment in both August and September. In the last three months, employment in the leisure and hospitality industry has risen by 154k, or a 3.9% annualized rate, making it far and away the fastest growing sector of the services economy (or the total economy for that matter). We do not consider that a healthy aspect of the overall U.S. labor market. These will be among the first jobs to go in a recession.
The bottom line: This was a very solid report if you look only at the basic metrics. Not far below the surface, however, there are concerns about the composition of job growth in October and in recent months. We have skirted a jobs recession for all of 2019 but, uncertainty continues to swirl for business owners and that likely means restrained investment in both capital and labor in the next few months.