October Employment Report

KEY DATA: Payrolls: 214,000: Revisions: +31,000; Private Sector: 209,000; Unemployment Rate: 5.8% (down from 5.9%); Hourly Wages: +0.1%; Year-over-Year: 1.9%

IN A NUTSHELL:   “Though people are coming into the workforce and finding jobs, we still need hiring to be stronger before we will see wage gains accelerate and worker confidence improve.”

WHAT IT MEANS:  The results are in and the labor market is close to being healthy but it is not there yet.  While there was little bad news in the October employment report, we really cannot say that workers should feel great about conditions. While job gains were less than hoped for, the August and September increases were revised upward solidly, bringing net gains to 245,000.  That is pretty solid.  The revisions are critical because they are showing better growth than first reported.  The initial job gain for August was 142,000, a disappointing performance.  But that now stands at 203,000, a pretty decent number.  It is likely that the upward revisions will continue, which means we have to focus on the previous months, not just the current month’s numbers.  Over the past three months, job gains have averaged just under 225,000, a strong but not yet robust pace.  Gains were across the board, including manufacturing, construction, retailing and even local government. So much for fiscal austerity.   The problem remains wages.  They rose modestly once again and the only thing that is keeping people afloat is the even slower rise in prices.

The unemployment rate declined to its lowest level since July 2008.  All components were strong as the labor force grew, unemployment dropped and the labor force participation rate rose.  One detail popped out: The teenage unemployment rate was 18.6%.  Teens comprise only 3.7% of the labor force but 12.1% of those unemployed.  The unemployment rate for those 20-years and older was 5.3%.  To make a big dent in the unemployment rate, we have to cut the teenage rate a lot more.  However, when it comes to labor shortages, teenagers are not the target hiring group, so we should keep a closer eye on the over-20 unemployment rate.

MARKETS AND FED POLICY IMPLICATIONS: Almost all the economic numbers point to an improving labor market and economy.  So, why did the electorate throw the Democrats out on Tuesday?  They blamed them for a “weak” economy and they were not really wrong.  The economic number that matters most to the average worker is income, not GDP or labor force participation rate.  Politicians and economists can debate those other data all they want, as long as wage gains are minimal, people will feel sour about the economy.  So let’s stop talking about jobs and start talking about income.  If anyone has any idea how to grow workers incomes other than reaching a point of labor shortages, let me know.  Thankfully, we are getting there and the unemployment rate is nearing full employment.  Wage gains will have to follow, but getting businesses to accept that reality may take a lot longer now than in the past.  That time frame is something the Fed members will be puzzling over, as it holds the key to Fed policy.