The employment situation is a set of labor market indicators. The unemployment rate measures the number of unemployed as a percentage of the labor force. Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls. (Bureau of Labor Statistics, U.S. Department of Labor) Why Investors Care
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Highlights
The October jobs report came in significantly worse than expected - showing an acceleration in the pace of contraction for the economy. Nonfarm payroll employment in October plummeted another 240,000, following a revised drop of 284,000 in September and a revised decrease of 127,000 in August. Payroll jobs have fallen for ten consecutive months. The October decline in nonfarm employment was notably worse than the market forecast for a 200,000 decrease. The August and September numbers were revised down a net 179,000. For the year-to-date, the economy has lost 1.2 million jobs net.
Indeed, the October report shows labor market weakness spreading. The latest job losses were widespread with few positives. The October drop was led by manufacturing and construction which fell by 90,000 and 49,000, respectively. Rounding out the goods-producing sector, natural resources & mining rose 7,000 in the latest month.
Service-providing jobs fell 108,000 after sliding 201,000 in September. In this category, trade & transportation dropped 67,000 while professional & businesses services declined 45,000. The only major categories with gains were education & health services and government-up 21,000 and 23,000, respectively.
On a year-on-year basis, nonfarm payroll employment growth worsened to down 0.8 percent in October from down 0.5 percent in September.
Average weekly hours were unchanged at 33.6 hours in October.
However, wage inflation is holding steady and is a little on the soft side. Average hourly earnings posted a 0.2 percent rise in October, matching both the boost the month before and the market forecast. Year-on-year, wages were up 3.5 percent in October - firming only slightly from 3.4 percent in September.
Turning to the household survey, the civilian unemployment rate jumped to 6.5 percent in October from 6.1 percent the month before. The latest number was higher than the consensus forecast for a rise to 6.3 percent and was the highest since 6.5 percent set in March 1994.
The October employment report shows the economy in a significant recession. The numbers should weigh heavily on equities and likely result in flight to safety with Treasuries. More specifically, we can expect more retrenchment by the consumer sector over job losses and fears of job losses. It is likely to be a disappointing holiday season for retailers.
Nonfarm payroll employment has been on a downtrend all year with the most recent drop coming in at 159,000 for September. High initial claims and increased mass layoffs point to further payroll losses in October and in coming months. We also are likely to see continued softness in hours worked. Average weekly hours slipped to 33.6 hours in September from 33.7 hours in August. The sluggish labor market has started to impact earnings also. Average hourly earnings eased to a 0.2 percent rise in September, following a 0.4 percent gain the month before. The market had projected a 0.3 percent increase. Most economists expect the unemployment rate to resume its rise. In September, the civilian unemployment rate held steady at 6.1 percent.
Nonfarm payrolls Consensus Forecast for October 08: -200,000
Range: -250,000 to -85,000
Unemployment rate Consensus Forecast for October 08: 6.3 percent
Range: 6.2 to 6.5 percent
Average workweek Consensus Forecast for October 08: 33.6 hours
Range: 33.4 to 33.7 hours
Average hourly earnings Consensus Forecast for October 08: +0.2 percent
Range: +0.2 to +0.3 percent
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During the mature phase of an economic expansion, monthly payrolls gains of 150,000 or so are considered relatively healthy. In the early stages of recovery though, gains are expected to surpass 250,000 per month. |
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The civilian unemployment rate is a lagging indicator of economic activity. During a recession, many people leave the labor force entirely, so the jobless rate may not increase as much as expected. This means that the jobless rate may continue to increase in the early stages of recovery because more people are returning to the labor force as they believe they will be able to find work. The civilian unemployment rate tends towards greater stability than payroll employment on a monthly basis. It reveals the degree to which labor resources are utilized in the economy. |
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