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Friday, November 3, 2017

Payroll Growth Bounces Higher, Unemployment Rate At 4.1%

Wage inflation backed off but payroll growth bounced higher and the unemployment rate shrunk some more in what points to further tightening for the labor market. Nonfarm payrolls rose 261,000 in October which is lower than the expected rebound but is offset by 90,000 in upward revisions to the two prior months. The unemployment rate edged 1 tenth lower to a new 17-year low at 4.1 percent.

After spiking 0.5 percent in both July and September, average hourly earnings came in unchanged in October with the year-on-year rate falling back sharply to a very moderate 2.4 percent. Whether wages can stay moderate given the strong demand for labor is the puzzle of this report.

Hurricane effects are likely the cause of the monthly gyrations in this report and are most evident at restaurants where payrolls jumped 89,000 after plunging 98,000 in September. Manufacturing payrolls are a big plus in the report, up 24,000, with construction also positive at 11,000. Professional business services underscore the demand for labor, rising 50,000 with the temporary help component up a very sizable 18,000.

The average workweek for all private-sector employees was unchanged at 34.4 hours but manufacturing hours and manufacturing overtime both show gains which point to a long overdue rebound for the manufacturing component of the industrial production report.

The pool of available workers shrunk sharply in the month, down 724,000 to 11.705 million which underscores the tight conditions. How long can employers dip into the pool without having to raise wages is the central question right now for policy makers. And the sharp dip in the labor participation rate, down 4 tenths to a much lower than expected 62.7 percent, suggests that discouraged workers, despite the high demand, may be drying up as a source of additional labor. Today's report should confirm expectations for a rate hike at the December FOMC.


Recent History Of This Indicator:
Hurricane effects pulled nonfarm payrolls down 33,000 in September and a bounce-back gain of 325,000 is expected for October. The consensus range, however, is very wide, between 200,000 and 371,000. September's unemployment rate fell to a 16-year low of 4.2 percent and is expected to hold there in October. No less dramatic was a sharp jump for average hourly earnings where September's 0.5 percent surge is expected to slow to 0.2 percent for a 2.7 percent yearly rate vs 2.9 percent in September. Other calls are for a 320,000 rise in private payrolls, a 19,000 gain for manufacturing payrolls, and no change for the workweek at 34.4 hours.

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