The Corner

October Jobs Report Brings Nothing but Good News

After two tepid months in a row, the labor market was firing on all cylinders in October, with more jobs, higher wages, and lower unemployment. Keep this in mind the next time we hit a soft patch. It’s not the end of the world; the data will turn up again.

Payrolls increased 271,000 in October, easily beating the consensus expected 185,000 and higher than any forecast from any economics group. (First Trust was at 220,000 and Bloomberg rates us the No. 1 payroll forecasting group in the past two years.) Even better, private payrolls rose 268,000 in October and, with upward revisions for prior months, were up 324,000. Meanwhile, civilian employment, an alternative measure of jobs that includes small business start-ups, increased 320,000.

We’re sure the pessimists will scour the report for any negative nugget they can find, but they’ll have no chance with part-time jobs. Part-time employment fell in October and is down 869,000 from a year ago, meaning a larger share of jobs are full-time. In the past 20 years, part-time jobs have averaged 17.6 percent of total employment. Right now, part-time is only 17.4 percent.

Besides more jobs, the jobless rate fell to 5.0 percent, the lowest since early 2008. In addition, the expansive U-6 definition of unemployment, which includes discouraged workers and part-timers who want full-time jobs, slipped to 9.8 percent versus a peak of 17.1 percent back in 2009-10. Moreover, the drop in unemployment came even as the labor force rose 313,000.

But the good news didn’t stop there. Average hourly earnings rose 0.4 percent in October and are up 2.5 percent from a year ago, the fastest twelve-month gain in the past six years. Remember, this measure excludes tips, irregular bonuses/commissions, and fringe benefits, and given rising health-care costs is probably understating the growth in employment costs. As a result of more jobs and higher wages, total wages were up 0.6 percent in October and are up 4.6 percent in the past year. In other words, recent gains in consumer spending are being driven by higher total earnings, not consumers loading up on too much debt.

The one negative in today’s report was that the participation rate remained very low, at only 62.4 percent, still reflecting retiring Boomers, too easily available disability benefits, and overly generous student aid.

The bottom line is the trend in job growth is likely around 210,000, faster than in August/September, but slower than October. As we said last month, don’t get too depressed when we fall short or too excited when we beat it. The economy remains a Plow Horse. Payrolls should expand about 2.5 million in the next year as real GDP keeps growing right around 2.5 percent.

Robert Stein is an economist for an asset-management firm and a former deputy assistant Treasury secretary for macroeconomic analysis.

Recommended

The Latest