Labor Market Metrics Continue to Improve
- The October Payroll Employment Survey showed a gain of 214,000 payroll jobs.
- The Unemployment Rate for October dropped to 5.8 percent.
- Average Weekly Hours for all employees increased by one-tenth to 34.6 hours in October.
- Average Hourly Earnings were up by 0.1 percent in October and by 2.0 percent over the previous 12 months.
The October labor data are consistent with an ongoing moderate GDP expansion. Total payroll employment increased by 214,000, a little below expectations of about 230,000, but still a good number. August and September jobs numbers were revised up. Remember the weaker-than-expected August job gain of 142,000? Well don’t. It has been revised up to 203,000. The unemployment rate dropped a tenth to 5.8 percent with a very large 683,000 job increase in household employment. In October, the average workweek increased by a tenth to 34.6 hours. Average hourly earnings increased by 0.1 percent. In short, a good report.
A U.S. unemployment rate below about 5.5 percent is consistent with accelerating wages, so we are starting to get into the zone where the Federal Reserve will be studying and debating signs of wage inflation. The overall inflation picture is complicated by falling energy prices and by a stronger dollar. At the same time that we have increasing inflation potential from tightening labor markets, we have decreasing inflation from lower energy prices and from falling import prices due to a strengthening dollar. The Federal Reserve will be looking at inflation indicators very carefully in the months ahead as it contemplates the next step in normalizing monetary policy, interest rate lift-off.
Lower oil prices, in the $80-$70 per barrel range for WTI, will keep production strong in the U.S. However, we will see more reports of expensive new exploration projects being reduced or curtailed. Lower oil prices are positive for energy consuming industries and regions, adding to corporate profit margins and supporting non-energy consumer spending. This will shift economic growth marginally toward energy consuming regions (the East and West Coasts), putting more downward pressure on unemployment rates there.
Job gains in October were broadly distributed across industries. Oil and gas extraction added 2,500 jobs in October. We expect to see job growth in oil and gas extraction ease in the months ahead, reflecting lower oil prices. Construction industries added 12,000 jobs in October with gains in residential building activity. Manufacturing was strong, adding 15,000 jobs, mostly in durable goods industries. Wholesale trade employment was up by 8,500. Retail trade added 27,100 jobs, preparing for what we expect to be a good holiday shopping season. Transportation and warehousing employment was up by 13,300. Financial industries added only 3,000 jobs. Employment in professional and business services increased by 37,000 jobs. Education and healthcare was up a strong 41,000 jobs. Leisure and hospitality employment surged by 52,000 jobs. Lower gasoline prices will help there. Government employment was up by 5,000 jobs in October.
Market Reaction: U.S. equity markets opened with losses. The 10-Year T-bond yield is down to 2.34 percent. NYMEX crude is down to $78.74/barrel. Natural gas futures are down to $4.45/mmbtu.
For a PDF version of this Comerica Economic Alert click here:Employment 11-07-14.