Traditionally after recessions, once the unemployment rate falls below 5%, workers on the sideline tend to begin trickling back into the workforce. The October U.S. employment report released on Friday was no exception, showing an increase of 531,000 jobs and a decline of roughly 255,000 in the jobless rolls as the unemployment rate fell to 4.6%.
The economy added 531,000 jobs in October as the jobless rolls declined by 255,000.
The report overall was a reflection of the tight labor market in the economy, as average hourly earnings rose by 4.9% and aggregate hours worked increased by 0.3% on the month, according to the Bureau of Labor Statistics.
These trends will support robust household consumption as the traditional holiday spending season begins in earnest.
One would expect that with the delta variant fading, the October jobs data should be a harbinger of a series of strong jobs reports over the next three to six months.
Still, 6 million people who want a job remain out of work. Many of these people will return to workforce in the coming months. This is encouraging and will support a strong increase in overall income and spending through the next year.
In October, 3.8 million people reported that they had been unable to work because their employer closed or lost business due to the pandemic—that is, they did not work at all or worked fewer hours at some point in the four weeks preceding the survey because of the pandemic.
This measure is down from 5 million in September. Among those who reported in October that they were unable to work because of pandemic-related closures or lost business, 13.3% received at least some pay from their employer for the hours not worked, little changed from the prior month.
This is exactly what one would want to see as the private sector tries to navigate its way out of an unprecedented public health shock.
While the economy remains 4.6 million workers short of the pre-pandemic level, the labor force participation rate remained unchanged at 61.6% as the employment-to-population ratio among workers in their prime working years of 25 to 54 remained essentially unchanged at 78.3%. The overall employment-to-population ratio stands at 58.8%.
On a three-month average annualized pace, average hourly earnings increased at a 5.3% rate, which reflects a tight labor market that favors workers and rising wage premiums.
Expanding economy
The main policy takeaway from this report is that the economy continues to expand and demand for workers remains robust, even as the economy remains short of full employment, which the central bank defines as roughly 4%.
With roughly 3.25 million baby boomers exiting the workforce, and an additional 252,000 leaving in October, the policy focus for the Federal Reserve remains on the composition of the labor force and the employment-to-population ratio for prime-aged workers.
The slow return of workers should reinforce the idea at the central bank that the economy will approach full employment by the second half of next year as conditions coalesce for a potential kickoff to the inevitable interest-rate normalization by the Federal Reserve late next year or in early 2023.
This should underscore the arguments by the doves at the Federal Reserve who are counseling patience in the move toward normalization.
Inside the report
Beneath the headline number, the composition of hiring improved noticeably in October, with the private sector generating 604,000 new jobs, including 108,000 higher-paying goods producing jobs, 44,000 construction positions and 60,000 manufacturing jobs.
The service sector added 496,000 jobs on the month with 100,000 coming in business services, 104,000 in trade and transport, and 164,000 in leisure and hospitality. Retail trade added 35,000 jobs, education and health contributed 64,000 jobs, information 10,000 and the financial sector 21,000. The government sector shed 73,000 jobs in October.
Involuntary part-time employment eased modestly to 4.42 million workers, well below the long-run average of 5.4 million.
This would tend to suggest that conditions are ripe for firms to dip into the ranks of the long-term unemployed and younger, less-educated workers to meet demand. Not surprisingly, the number of long-term unemployed (those jobless for 27 weeks or more) decreased by 357,000 to 2.3 million in October, but that total is 1.2 million higher than in February 2020.
The long-term unemployed accounted for 31.6% of the total unemployed in October. Add that to the growing list of metrics that we will monitor as we look to define what full employment means in the post-pandemic economy. Stay tuned, because this is going to be a major theme next year and beyond.
