Job Growth and a Growing Economy - November 5, 2018

The U.S. Bureau of Labor Statistics reported that nonfarm payrolls rose by a strong 250,000 in October. The unemployment rate, which is derived from a separate survey, held at 3.7%, the lowest since 1969.

The nonfarm payroll number has been volatile lately. We get strong numbers followed by weaker numbers.

July registered 165,000, August 286,000, September 118,000, which brings us to October’s preliminary reading of 250,000. Over the last six months, the average up or down change in the payroll number from the prior month has been 103,000 (U.S. BLS data). There doesn’t seem to be much month-to-month consistency.

Seasonal discrepancies that aren’t being accounted for, survey quirks, or some combination may be to blame. What is important, however, is that any noise in the monthly data is generally squeezed out when viewed over longer period.

During the first ten months of the year, payroll growth averaged a healthy 213,000 each month, up from 180,000 over the same period in 2017.

11 5 18 NONFARM payrolls

A tight labor market may be slowing job creation. But the growing economy is encouraging firms to expand and hire. We see it in the data.

11 5 18 index

One final remark. An annual increase of 3.1% in average hourly earnings captured quite a bit of attention (U.S. BLS). It was the fastest pace in almost ten years. Rising wages support consumer spending and boost consumer confidence. It can also eat at profit margins and encourage firms to raise prices.

While wage growth has gradually firmed, it remains curiously low given the difficulty some firms are having finding employees. Why aren’t companies bidding up wages to attract workers? There’s no easy answer.

However, the 3.1% increase is a year-over-year increase. It’s a good way to gauge trends when charting, but by itself, it can sometimes send a muddied signal. In this case, distortions caused by Hurricane Harvey’s landfall last year in Texas distorted the wage data a year ago, accentuating October’s increase.

That said, the latest employment numbers are encouraging, signaling the economy continues to expand.