The Labor Department October jobs report released on Friday showed the U.S. economy added 271,000 and the headline unemployment fell to 5%, far exceeding views. Economists had forecast 180,000 new jobs last month and that the unemployment rate would hold steady at 5.1%.
Wages also grew far more than expected, gaining 2.5% from a year ago, while average hourly earnings of all employees on private nonfarm payrolls rose by 9 cents in October to $25.20.
However, the labor force participation rate clocked in at 62.4 percent, which was unchanged from September. The less often cited but arguably more important employment-population ratio was also unchanged in October, at 59.3 percent, and has shown little movement over the past year.
Admittedly, while welcome news, the October jobs report has left a number of analysts scratching their heads in disbelief. Data released leading up to the report showed little reason for optimism in the numbers. The Commerce Department reported that gross domestic product (GDP) slowed considerably in the third quarter, though the trade deficit was trimmed to its lowest level in 7 months.
“What’s also troubling is that in the third quarter companies have been announcing job cuts, including a range of industries from banks to telecoms, as well as continued cuts in energy,” said Tara Sinclair, chief economist at job site Indeed.
Analysts looking at the numbers can point only to the service sector for consider growth, which has far outpaced its manufacturing and energy counterparts. The Institute for Supply Management’s non-manufacturing index (NMI) rose to 59.1 in October from 56.9 in September. The NMI is a barometer for the nation’s restaurants, builders, bankers and other service providers, but many of these positions tend to be lopsided toward lower wage jobs.
The Labor Department said retail trade employment grew by 44,000 in October, compared with an average monthly gain of 25,000 over the prior 12 months. Gains came from clothing and accessories stores (+20,000), general merchandise stores (+11,000), and automobile dealers (+6,000). All save for the latter are low-paying positions. However, employment in professional and business services rose by 78,000 in October, compared with an average monthly gain of 52,000 over the prior 12 months.
This mirrors the NMI results, and is undoubtedly good news for wages. In October, job gains occurred in administrative and support services (+46,000), computer systems design and related services (+10,000), and architectural and engineering services (+8,000).
Other higher paying sectors, on the other hand, offer little in terms of explanation on wage growth. For instance, national manufacturing activity fell to 50.1 in October from 50.2 in September, marking a 4th straight month of decline. Yet, according to the October jobs report, employment in manufacturing was unchanged over the month and has shown little net change thus far this year.
Mining continued to trend down, losing anther 5,000 positions amid overbearing government regulation. Since December 2014, employment in this industry has declined by 109,000 good-paying jobs.
While representing a small decline, the number of persons employed part time for economic reasons fell modestly to 5.8 million. These American workers, who are also referred to as involuntary part-time workers, prefer full-time employment but were working part time because their hours had been cut back or they were simply unable to find full-time work. The number of discouraged workers, who the Labor Department consider a subset of marginally attached workers who believed that no jobs were available for them, was posted at 665,000 in October. This number was no different a year ago.
Meanwhile, policy-makers on the Federal Reserve Open Markets Committee have repeatedly tied the timing and trajectory of the first rate hike since the Great Recession to inflation and wages. In theory, wages increase when supply and demand for labor increases. When more people are working and looking for work it should be more difficult for employers to fill opening, forcing them to raise wages to compete.
Unfortunately, that hasn’t been the case and the central bank has hyped expectations for a rate increase by the end of the year. The October jobs report, suspiciously or not, will give pro-rate hike proponents on the committee the “data dependent” bullet points they need.