The jobs report may have missed estimates, but it provides plenty of confirmation that the U.S. economy can sustain its growth momentum despite the sub-par outlook for its trading partners in Europe, Japan and China. Importantly, such a not-too-hot-and-not-too-cold read is exactly what stock market investors would love to see from the Fed angle.
A total of +214K jobs were created in the U.S. economy, below consensus estimates of around +233K and the 12-month average of about 222K. Importantly, the surprisingly weak report for August (we had a ‘shocking’ 142K read that month) has been steadily getting revised higher since then; it went up to 180K in last month’s report and got further revised higher today to 203K. As of this report, the monthly tallies for the last two months stand revised up by a combined 31K.
Private sector jobs totaled +209K in October vs. +244K in September and 200K in August. The gains were concentrated in the food service, retail and healthcare industries. Food service (includes bars and restaurants) added 42K during the month, up from the industry’s monthly average of 12K over the preceding 12 months. The 25K additions by the healthcare industry were broadly in-line with the pace of job gains over the preceding year. Professional and business services added 37K, below the preceding 12-month’s average of 56K. The manufacturing sector added 15K jobs, bringing the industry’s total job gains over the year to 170K, most of those coming from durable goods manufacturing.
[Hear: Jim O’Sullivan: The Domestic Economy Is Accelerating]
The weakest part of the report is the lack of income gains, with average hourly earnings increasing by 3 cents only essentially unchanged to $24.57. On a year-over-year basis, average hourly earnings are up +2%, in-line with the trend that we have been seeing since 2010 and below the pre-recession level of gains in excess of +3%.
The hope has been that as the unemployment rate keeps coming down, it dropped a bigger-than-expected two ticks in September to 5.9%, employers will need to pay up to entice new workers. That hasn’t happened yet. Contributing to the stagnant wages is the lack of high-paying manufacturing jobs and the preponderance of low-skill jobs in retail, hospitality and other such industries.
The labor force participation rate of 62.8% ticked up from the September level, but remains at multi-year lows. The Fed view appears to be that demographics are driving a big part of the participation rate and hence the rate will likely not see any meaningful improvement going forward.
From the stock market perspective, this is a very positive read from the labor market. It is good enough to show a still improving labor market, but the gains aren’t rapid enough to make the Fed twitchy. This is about as close to goldilocks for stock market investors as it gets.
