The GM strike distorted the October U.S. employment report, resulting in a net gain of 128,000 in total jobs. Investors will hang an asterisk on the October report–42,000 jobs linked to the strike and a 17,000 job decline in census workers. But once the damage caused by the strike is excluded, it appears the economy generated close to 187,000 new jobs, which is in line with the three-month average of 176,000.
The October report continues to imply a period of slower hiring ahead, excluding temporary census workers compared to one year ago which is in line with the overall slower pace of economic activity. The bottom line of the October U.S. employment report is that there is sufficient job creation and wage gains to support growth near the long-term trend of 1.8 % and keep the U.S. some distance from a total economic downturn.
Given the slowdown in overall economic activity in line with the long-term trend policymakers, investors and firm managers should expect that top-line hiring will continue to slow toward 100,000 jobs per month in early 2020 which is the minimum necessary to keep the unemployment rate stable. Once hiring slows to a monthly average beneath that number the unemployment rate will begin to increase, signaling what we think will be the major 2020 labor market narrative.
Policy implications
The policy implication from the job growth trend is that the bar for a Fed rate cut in December or early 2020 was set a bit higher. The stance of constructive ambiguity adopted by the central bank is on point, given the upward revision of 95,000 jobs to the August and September data. While there is some collateral damage inside the labor market report linked to trade policy, for now the underlying trend points toward sustained—albeit modest—wage growth, which is well-positioned to put a floor underneath domestic growth. The Fed’s policy pause will likely continue well into 2020.
The unemployment rate increased to 3.6%, while average hourly earnings increased by 0.2% on the month and advanced 3% from a year ago. Perhaps more importantly, within the age 25-54 cohort, the percentage of workers employed climbed to 80.3%, a cyclical high, and wage growth among that cohort is slightly above 4%; that points to the strong condition of the consumer, underscoring the current economic outlook.
Broad strength in business services, finance, education, health and, unexpectedly, leisure and hospitality, were the foundation of the overall strength in the monthly hiring tally.
It is important to note that overall hiring conditions remain relatively solid, even as the pace of overall hiring slows. There is still less than one unemployed individual seeking work per job opening. The No. 1 challenge for small and medium enterprises is finding willing and available workers with the necessary skill sets to meet the demand for labor.
