November 03, 2023
The October Jobs report presents a mixed picture of the economy. The establishment survey showed the economy generating 150,000 jobs for the month, a number that would have been roughly 30,000 higher without the UAW strike. However, the household survey showed unemployment ticking up to 3.9 percent. This was a bad rise in unemployment, as it was accompanied by a drop of 348,000 in the number of people employed and a 0.1 percentage point decline in the labor force participation rate.
Trouble Signals in the Establishment Survey
Ordinarily, the growth reported in the establishment survey would be considered very healthy, and perhaps even too strong given the low unemployment rate. However, there were some aspects that raised concerns.
First, there was a drop in the length of the average workweek. The index of aggregate weekly hours actually fell 0.3 percent in October. This is great news from the standpoint of productivity growth. We had two consecutive quarters of extraordinary reported productivity growth (3.6 percent and 4.7 percent in the second and third quarters, respectively). If we can maintain positive GDP growth in the fourth quarter, with little growth in hours, that would mean a third consecutive quarter with strong productivity gains.
However, the drop in hours also suggests a weakening in the demand for labor. The index of aggregate hours declined in almost every sector. (Leisure and hospitality was the major exception.) In addition, the one-month diffusion index, showing the percentage of industries adding jobs, fell from 61.4 to 52.0, the lowest reading since June of 2020 during the lockdowns.
There was also a downward revision of 101,000 to the prior two months’ data. This brings the three-month average job gain to 204,000 (214,000 without the UAW strike).
Wage Growth Remains Moderate
The annualized rate of wage growth for the last three months was just 3.2 percent, the same as for the three months ending in September. This is below the pace of wage growth we saw in 2018 and 2019, which averaged close to 3.4 percent.
Healthcare and State and Local Government Accounted for Most of the October Job Growth
The healthcare sector added 58,400 jobs in October. Its average gain over the last five months has been 63,000 jobs. Its average monthly job gain in the two years prior to the pandemic was just 24.8k. Still, given the massive job loss in the pandemic, the sector is still more than 400k jobs below where it would be if the pre-pandemic trend had continued.
The state and local government sectors added 10,000 and 38,000 jobs, respectively. They are still adding back the jobs lost in the pandemic. State employment is still down by 36k (0.7 percent) from its pre-pandemic level and local government employment is down by 39k (0.3 percent).
Construction Continues to Add Jobs, Manufacturing Nearly Flat, After Accounting for the Strike
Construction and manufacturing have historically been the most cyclically sensitive sectors of the economy, so it is reasonable to look to their employment trends for evidence of a coming recession. Construction employment remains strong, with the sector adding 23,000 jobs in October. There was even strong growth in the residential components, which added 13,700 jobs.
Manufacturing reportedly lost 35,000 jobs, but almost all of this was due to the effect of the UAW strike, which BLS puts at 30,000 jobs. (The motor vehicle and parts sector lost 33,200 jobs.) With several Fed surveys of employers showing expected drops in manufacturing employment, there is cause for concern, but we are not seeing substantial job loss yet.
Mixed Jobs Picture in Other Sectors
With healthcare, government, and construction accounting for the vast majority of October job growth, there was a very mixed picture elsewhere. Retail trade added just 700 jobs. Transportation and warehousing lost 12,100 jobs. The information sector lost 9,000 jobs, with the motion picture component accounting for 5,400 of this loss, most likely due to the continuing effects of the screen actors’ guild strike.
The financial sector lost 2,000 jobs, the biggest part of this being a drop in employment of 10,000 in credit intermediation, likely due to declines in mortgage issuance. The temp help sector showed a modest gain of 6,600 jobs after a loss of 8,900 jobs in September. Restaurants lost 7,500 jobs in October, but that was after a gain of 48,300 the prior month.
Women Accounted for 80 Percent of the Job Gains in October
Given the strong growth in government employment and healthcare, it is not surprising that women accounted for the bulk of October’s job growth. Their share of payroll employment now stands at 49.86 percent. It had been over 50.0 percent before the pandemic.
Rise in Unemployment in Household Survey Inconsistent with Job Growth in Payroll Data
Since April we have seen a 0.5 percentage point rise in the unemployment rate. This is hard to reconcile with the strong job growth reported over this period in the establishment data. The household survey shows a gain in employment of just 191,000 over this six-month period, while the establishment survey shows an increase of 1,234,000 jobs.
When we see this sort of discrepancy, it is generally best to rely on the establishment survey. It is much larger and has a considerably higher response rate.
Share of Job Loss Due to Voluntary Quits Little Changed at 12.6 Percent
Job leavers as a percentage of unemployment little changed at 12.6 percent. This is well below the peaks of 2022 and also below pre-pandemic peaks, both of which were above 15.0 percent.
Little Change in Most Measures in the Household Data
There was little change in the employment and unemployment rates for most demographic groups. One exception was a 0.6 pp drop in the employment rate for people with college degrees from 71.9 percent to 71.3 percent. Since employment for this group actually rose by 265,000, this would imply an increase of more than 1.1 million in the number of people with college degrees between September and October. That sounds like a serious case of measurement error.
Respectable Job Growth in October, but Definitely Cause for Concern
A bit over a year ago, Bloomberg proclaimed that there was a 100 percent chance of a recession in the next year. We obviously have not seen it yet and we aren’t seeing it now in an economy that created 150,000 jobs in October (180k adjusting for the UAW strike).
However, there are definitely grounds for concern with the drop in hours and the concentration of job growth in the government and healthcare sectors. With wage growth having slowed sharply, and other measures of labor market slack showing considerable weakening, the Fed can turn its focus away from inflation and more towards supporting the economy.
