October Employment Report

KEY DATA:  Payrolls: +638,000; Private: +906,000; Retail: 104,000; Restaurants: +192,000; Construction: 84,000; Temporary Help: +109,000/ Unemployment Rate: 6.9% (down from 7.9%); Participation Rate: +0.3 Percentage Point

IN A NUTSHELL: “The virus may be raging, but it hasn’t stopped firms from hiring.”

WHAT IT MEANS:  You know those stories about the moderation in hiring?  Well, not so fast.  The economy added a ton of new workers in October.  Yes, the headline number was somewhat less than in September, but that was due to the Census ending.  Government employment plummeted.  The private sector, meanwhile, continued to hire like crazy.  Over the past three months, firms have increased their payrolls by 2.8 million workers, a truly impressive performance.  And the gains were spread across the economy.  Not surprisingly, given the housing data, construction soared.  With vehicle demand and retail sales solid, manufacturing was up solidly.  On the services side, other than continued weakness in the airline industry and education, which is being buffeted by virtual leaning, there were few areas where jobs were lost.  Indeed, nearly 69% of the 258 industries posted payroll increases. 

But the real story was in the unemployment portion of the report.  The unemployment rate cratered and for all the right reasons.  The labor force grew, the number of people unemployed declined and the labor force participation rate popped.  That indicates workers are confident enough that they will find a position if they start looking and that when they do look, they are getting jobs.  The work week remained elevated and wages rose, though somewhat modestly.  The only negative in this report was that long-term unemployment is rising rapidly.  For those in sectors that are coming back or who worked in firms that are reopening, becoming re-employed has been relatively easy.  For others, though, their jobs are gone and getting new ones is becoming more difficult. 

IMPLICATIONS:  This was a big report.  The recovery in the economy and the labor market remained on track in October.  Can we keep it up?  It is all about the virus, not any underlying weakness in the economy.  A look at the details of the report points to good, but not great numbers in the months to come, especially if the virus keep raging through the country.  Can we keep getting massive increases in restaurant employment, or will new restrictions be placed on this sector.  With cold weather moving in, outdoor dining is going to disappear in many parts of the country and coupled with the restrictions that are not likely to be eased anytime soon, there could actually be a decline in employment in this sector.  Will housing starts keep rising so builders will continue to need more workers?  Retailers continued to open up, but will customers come into stores if the virus keeps surging?  And it is doubtful that temporary help firms can come anywhere near what they did in October.  That was just an outsized number.  So yes, the labor market improvement will continue, but the private sector has been adding workers at a pace that can only be reproduced if the reopening process continues unabated.  That is not likely.  Still, investors will probably love this report.  Anything that feeds the beast is embraced and this report has a lot of meat on the bone.