Friday, November 2, 2012

October Job Report

The October job report presented some good news mixed with some not so good news.  At first glance, I thought the report was quite positive, better than the report for September.  But didn't the unemployment rate rise in October (now at 7.9%) while it declined in September (from 8.1 to 7.8%)?    As discussed in last month's post concerning the job market, last month's decline wasn't supported by the other data within the report or elsewhere.  This month's report had several positive points.  The private sector added 184,000 jobs in October after adding an upwardly revised 128,000 in September.  Job creation was spread across many sectors, which is a good sign.  Of course calling job gains of 184,000 good shows how low expectations have been set.  More good news can be seen in the household survey which reported an increase in the labor force participation rate as well as more job creation.  The employment-population ratio rose to 58.8%, the highest since August 2009, still down from over 63% prior to the recession.  So the headlines from both surveys used to estimate the state of the job market were positive.

What's the not so good news?  The index of aggregate hours worked (see table B9 - production and nonsupervisory workers) declined slightly (another measure of aggregate hours worked increased slightly).  Looking at more details by industry (table B2), it looks like there were small declines in weekly hours worked for various industries.  Though the establishment survey (used to estimated nonfarm payrolls and hours worked) doesn't distinguish between part-time and full-time employment, the increase in employment accompanied by a small decrease in average weekly hours suggests many of the new hires are part-time workers.  The household survey does distinguish between part-time and full-time employment and indicates that about one-third of the jobs created based on its survey were part time (table A9).  In addition, average hourly earnings declined slightly and is now up 1.6% over the last 12 months, which means real hourly earnings (i.e., after adjusting for inflation) are flat (since consumer inflation is running at about 1.7% (according to the PCE index).

What's the takeaway?  It was a pretty good report overall, showing more job growth spread across many industries and more people returning to the job market.  However, the weakness in hours worked and hourly earnings are reasons for caution.  In addition, emloyment gains seem to be outpacing other indicators of the economy including GDP (which rose by 1.3% and 2% in the last 2 quarters, respectively) and business investment (which is been sluggish of late).