Catch-up in October Employment Seals the Deal

Payroll employment surged by 271,000 in October, reversing the weakness we saw over the summer. Moreover, gains were broad-based in everything from professional services, which include entry-level workers, to construction, retail, food services and hospitals. Consumers are clearly kicking up their feet and going out. Increases in the minimum wage and a surge in hiring of low-wage workers was a primary reason for improvements in consumer sentiment in October.

Hiring for the holiday season, which includes Halloween, is already underway. Car dealers, however, continue to play an outsized role in retail hiring; this underscores the shift back to big-ticket purchases. It also helps that credit standards in the auto sector continue to ease; dealers are almost giving vehicles away with zero down and zero-percent financing for 72 months.

The pickup in hiring at hospitals matches an increase in construction in that sector. Technological shifts which render old hospitals obsolete, a surge in the 80 and older population (who tend to use hospitals more) and shifts in health care coverage, which have given more chronically ill patients coverage, are all contributing to that trend.

The weak spot remained the mining sector, which has been pummelled by lower prices at the gas pump. Cuts to employment in that sector, however, are moderating. Manufacturing was also weak. That is to be expected given the headwinds associated with the ongoing strength of the dollar and overhang of inventories that we needed to work through. Orders going forward are stronger as signs of a bottom are emerging. The only real downside surprise was transportation; reports of labor shortages in trucking and commensurate wage gains likely held back employment in that sector during October.

Separately, average hourly earnings moved up 0.4%, double market expectations; earnings finally accelerated on a year-on-year basis. Average hourly earnings jumped 2.5% from a year ago, the fastest pace since the onset of the recovery. That could silence dissenters at the December Federal Reserve meeting and give Fed Chair Janet Yellen a much-needed boost to her credibility.

The unemployment rate slipped to 5%, although participation in the labor market remained subdued. That is a concern for Chair Yellen. She has already committed to taking the unemployment rate much lower to reengage workers who have been sidelined in recent years. The research on an increase in suicides and substance abuse deaths among prime, working-age white men without high school degrees is one of many measures of how far we need to go to regain jobs lost to the Great Recession.

Bottom Line: The October surge in employment, coupled with measurable wage gains, will give the Fed the green light needed for liftoff in December. The risks of dissent from within the Fed on that decision are also falling.


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