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The U.S. labor market is slowing, just not as quickly as we all thought before the release of the October payrolls report.
Despite the substantial headwinds of the GM strike and escalation of the trade war in September, U.S. nonfarm employment managed to increase a better than expected 128k jobs last month.
This was well above the consensus forecast looking for just 85k jobs.
But the real surprise was the 95k job upward revision in jobs created in August and September. The revised nonfarm employment data show a robust increase of 219k jobs for August and 180k jobs for September.
These upward revisions now put the 3-month moving average of monthly payrolls at a healthy 176k jobs a month. Going into today’s report, the 3-month moving average of monthly payrolls was running at 157k jobs.
Retail trade payrolls looked a lot better with today’s data revisions as well. The Bureau of Labor Statistics is showing retail trade payrolls growing modestly over the past two months now after seven consecutive months of declines earlier in the year.
The GM strike did weigh on the jobs report for October, but not as much as feared. Manufacturers’ payrolls only fell by a net 36k jobs, while the number of striking workers was around 55k, suggesting that job gains in other areas of manufacturing may have offset some of the temporary job losses from the strike. There was modest net job losses last month in the temporary help (-8k), information services (-4k), and government (-3k) sectors as well.
The other positive that needs to be pointed out was the resilience in private service job creation. Private service employment increased by 157k jobs in October, nearly on par with September’s 160k job gain and August’s 159k job gain.
With September’s large drop in the ISM Non-manufacturing index, we were bracing for increasing signs that service businesses were slowing down their pace of hiring. There is no evidence in today’s employment data that the manufacturing recession is yet impacting the health of the U.S. service sector labor market.
The leisure and hospitality sector added 61k jobs last month, education and health care added 39k jobs, and professional and business services added another 22k jobs last month. A material weakening of the U.S. service based economy is a necessary condition for an overall U.S. recession to develop in the quarters ahead. For now, it appears the U.S. economy is merely slowing down.
The other details of the October employment report were more in-line with our forecasts and less encouraging on workers’ income growth prospects. Average hourly earnings increased 0.2% last month, slightly below consensus expectation for a 0.3% increase. Moreover, the U.S. unemployment rate increased by a tenth of a percentage point to 3.6% from 3.5% in September. A 325k gain in the labor force outdistanced a solid 241k gain in household employment, pushing the unemployment rate slightly higher last month.
The October employment report will help further ease fears of imminent recession in the U.S, but does not sound the all clear regarding the economic outlook for 2020. Given the reliance on consumer spending for continued U.S. economic growth a sound labor market is essential.
On the other hand, the October ISM Manufacturing index remains firmly in contraction territory at 48.3 and the longer the drag from the manufacturing recession goes on it will increasingly weigh on service sector businesses and the health of the overall labor market.
To learn more, check out this week’s full U.S. Outlook report.
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