Solid Hiring Bodes Well for Holiday Shopping Season

U.S. employers added a better-than-expected 128,000 jobs in October despite ongoing trade concerns and a slowing global economy. The solid pace of hiring came even as 42,000 auto manufacturing jobs were on hold due to the General Motors strike, and 20,000 temporary Census Bureau workers finished their assignment for the 2020 Census. Additionally, employment gains for August and September were revised upward a combined 95,000 jobs. In another signal of labor market health, the labor force participation rate – which measures those working or looking for work – rose to the highest level since 2013 at 63.3 percent. With the entry of more job seekers, the unemployment rate ticked up slightly from 3.5 percent to 3.6 percent. Annual wage growth remained level, after revision, at 3.0 percent.

The labor market and consumer continue to drive the economy

The U.S. labor market, with its solid job creation, very low unemployment, and respectable wage growth, continues to propel the consumer. While other areas of the economy, most notably business investment and exports, have suffered in the wake of the U.S.-China trade war and slowing global growth, the consumer remains fairly unperturbed. In the latest figures, Gross Domestic Product – the widest measure of overall economic activity – rose 1.9 percent in the third quarter. While this was down slightly from 2.0 percent in the preceding period, it continued to showcase robust consumer spending. This coincides with recent measures of consumer confidence, which remain at elevated levels.

The health of the consumer comes at a crucial time as the U.S. enters the holiday season. While the National Retail Federation has projected strong sales in 2019, there has been some concern that growing business uncertainty could spill over into the labor market and harm consumers. While this hasn’t happened yet, it will be a key indicator to watch as we approach the end of the year. If the consumer fails to show up this holiday season, it could spell more danger ahead for the U.S. economy.

No rate hikes for some time, only pause or more cuts

After raising rates four times in 2018, the nation’s central bank has made a full turnaround in terms of its interest rate policy. In its late-October meeting the Federal Reserve cut its main policy interest rate, the federal funds rate, a quarter of a percent to a range between 1.5 – 1.75 percent. This was the third meeting in a row and the third time this year that Fed officials decided to slash rates in order to buffer the U.S. economy from weakness abroad. At the post meeting press conference, Fed Chairman Jerome Powell indicated that the Fed will likely keep interest rates where they are as long as the economy and labor market remain fairly stable. What was clear, however, was that without a sustained and prolonged period of inflation, there would be no thought of raising rates.

While Chair Powell pointed to a pause in rate cuts, there is reason to think that the Fed may act again sooner than they anticipate. The labor market remains solid, but job creation is clearly slowing and is well below levels seen in 2018. Additionally, there are growing signs that the weakness in the manufacturing sector may be starting to negatively affect other parts of the economy. And while the latest figures out of the Institute for Supply Management (ISM) point to a slight rebound in manufacturing activity, there still remains strong downside risks if the U.S. and China do not come to a significant trade deal.

Leisure and hospitality added the most jobs in October at 61,000. The industry was boosted by big gains in the food services and drinking places segment, which added 47,500 jobs.

Manufacturing employment declined by 36,0000 jobs as the General Motors strike slashed 42,000 jobs in the motor vehicles and parts segment. Manufacturing has taken a significant hit during the ongoing trade war with China and employment growth has declined sharply in 2019.

The government sector lost 3,000 jobs in October. This decline was fueled by the release of 20,000 temporary Census Bureau workers who finished their 2020 Census assignments.

October’s employment report was stronger than many economists and policy makers anticipated but it still showcased the same trend, namely slower job growth. While the labor market remains healthy given weakness in other parts of the economy, the downside risks are growing. If the consumer fails to show up this holiday season, it could spell more danger ahead for the U.S. economy.

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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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