The 40-day strike at General Motors may have been resolved, but its broader impact on the economy will become evident when key data on the U.S. labor market is released on Friday.
We expect the U.S. employment report to show a net increase of 75,000 in total employment, well below the three-month average of 157,000, with the risk of a much slower change in total employment for the month.
For this reason, we expect an increase in the unemployment rate to 3.6% and a gain of 0.3% in average hourly earnings on the month and a 3% change on a year-over-year basis. Given that the October employment report will be affected by the strike, we do not expect this to play any role in the Federal Reserve’s policy decisions.
It is important to note that overall hiring conditions remain relatively solid as the pace of overall hiring slows. There is still less than one unemployed individual seeking work per job opening. The biggest challenge for small and medium-size enterprises is finding willing and available workers with the necessary skill sets to meet the demand for labor. Perhaps more important, within the cohort aged 25-54, the percentage of workers is at or near a cyclical high and wage growth among that cohort is slightly above 4%, which points to the strong consumer outlook that underscores the current economic outlook. The underlying trend in hiring will remain solid, even as the October report will look undeniably soft.
The underlying trend in hiring will remain solid, even as the October report will look undeniably soft.
While investors will hang an asterisk on the October report, it will become clear if the recent downward trend in hiring remains in place once the effect of the GM strike is factored out of the jobs report. Hiring tends to be at best a coincident indicator and is often a lagging indicator; given the slowing in overall growth, expect top-line hiring to continue toward our year-end target of 100,000 per month, which is the minimum necessary to keep the unemployment rate stable.
Investors will most likely ignore the top line jobs number and focus on earnings, hours worked and the broader composition of hiring across the private service sector. In particular, hiring in government, business services, education and health care — all of which have generally propped up overall employment gains over the past few months — should not be materially affected by the strike and should hold up well.