Economics

October Jobs Report: Looking Through the Smoke and Spray

The U.S. labor market added 261,000 jobs in October.

Zions Bank Nov 3, 2017

The devastating after-effects of Hurricanes Harvey and Irma, along with the Northern California wildfires, were still being felt in this month’s employment report by the Bureau of Labor Statistics. As many businesses reopened and people surged back into work, the U.S. labor market added 261,000 jobs in October.

In addition to job growth, the unemployment rate fell to a 17-year low of 4.1 percent. However, this was likely due to the decline in the labor force participation rate from 63.1 percent to 62.7 percent. Annual wage growth, which had surged from 2.5 percent to 2.9 percent last month, returned to trend at 2.4 percent in October.

Top Takeaways From the Report

The streak continues: The longest-running employment growth streak on record is still alive, as the U.S. labor market added 261,000 jobs in October. This was made possible after the Bureau of Labor Statistics made an upward revision to last month’s job loss of 33,000 to reflect a net gain of 18,000 jobs. With revisions, the U.S. labor market has averaged 162,000 jobs over the last three months and has experienced 85 consecutive months of employment gains.

Unemployment and underemployment continue to decline: The unemployment rate in the U.S. fell to 4.1 percent in October – the lowest level in 17 years. In perhaps a more significant measure, the broader underemployment rate fell to 7.9 percent, down from 8.3 percent in September. This is the lowest rate since December 2006 and a significant sign that more people are finding the jobs they are looking for. As unemployment continues to fall, look for more industries to report labor shortages.

One step forward, two steps back for the labor force participation rate: One reason for the decline in the unemployment and underemployment rates was the loss of workers from the labor force. In a somewhat surprising reversal from September, the labor force participation rate — which measures the number of individuals working or looking for work — fell from 63.1 percent to 62.7 percent. This sharp decline puts a damper on the hope that the tightening labor market is drawing more people off the sidelines. The labor force participation rate will continue to face downward pressure as more baby boomers head for retirement. It will be important in the coming years to find ways to induce more people to join the workforce and contribute towards economic growth.

Wage growth disappointed: After bouncing to 2.9 percent in September, year-over-year wage growth fell back to 2.4 percent in October. While much of September’s gain can be attributed to the loss of lower wage workers in the leisure and hospitality industry due to the hurricanes, the sharp reversal was more than many economists expected. Before the hurricanes, wage growth had been stuck around 2.5 percent, and it appears that this month’s reading may be a return to the trend. The coming months should give more clues, as data distortions from the storms clear up.

Growth by Industry

The leisure and hospitality industry — which was significantly impacted by Hurricanes Harvey and Irma — bounced back, adding 106,000 jobs. There will likely be continued swings in this industry as more people get back to work and some businesses decide to close for good.

The professional and business services sector added the second-largest number of jobs at 50,000. The sector has added 536,000 jobs over the past year.

Education and health services added 41,000 jobs. Most of the increase came from the health care sector, which added 33,500 jobs.

Manufacturing added 24,000 jobs and marked the 12th straight month of employment gains. Over the last year the sector has added 156,000 jobs. This is a positive sign that the sector is seeing a turnaround.

The Bottom Line: The U.S. labor market continued its longest-running employment growth streak on record at 85 months. While there was some hope that last month’s gains in annual wage growth and labor force participation were reflective of fundamental improvement, it appears the gains were just transitory noise brought on by the hurricanes.

Overall, October’s employment report was solid. This report, coupled with the recent revival in U.S. economic growth and the nomination of current Fed Governor Jerome Powell to replace Fed Chairwoman Janet Yellen, likely keeps the Federal Reserve on track for another rate hike in December.

The division of Economics and Public Policy at Zions Bank informs and educates employees, clients, and the community-at-large by providing insight and analysis on issues related to local, national and global economic trends as well as federal banking policies. The primary goal of the Economic and Public Policy team is to help individuals and businesses understand important issues that can impact their daily financial decisions. For more information and analysis, please visit www.zionsbank.com/economy.

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