The October employment report had a fairly positive tone. Despite an increase in headline payrolls of only 80k and private payroll growth of 104k, net revisions to the previous months of data amounted to 102k and the third consecutive month of strong household employment led to a decline in the unemployment rate from 9.1% to 9.0% (unrounded: 9.012%). Altogether, the two surveys suggest that the labor market is showing durability in the face of various risks on the horizon, such as the European debt crisis and possible fiscal tightening in the US.
In the establishment survey, the 80k increase in headline payrolls was below what we (100k) and the market (95k) had expected. The shortfall relative to our forecast came from goods-producing payrolls, which fell 10k on the month, primarily because of a 20k decline in construction payrolls, which offset a modest 5k increase in manufacturing payrolls. Government payrolls declined 24k, in line with our forecast, and was led by a 22k decline in state and local government employment. Private services payrolls continued the momentum established in September, expanding by 114k, with increases in a broad range of sectors: trade/transport (35k), retail trade (18k), business services (32k), education/health (28k), and leisure/hospitality (22k). In terms of hours and earnings, average weekly hours remained unchanged at 34.3 hours and average hourly earnings were up 0.2% m/m, the latter 0.1% stronger than our forecast. Aggregate hours have now increased 0.7% 3m/3m (saar) through October, a modest acceleration from the Q3 rate of 0.1%. The “payroll proxy” for labor income, which is the product of hours, employment and hourly earnings, increased 2.2% 3m/3m (saar), softer than that achieved in Q3 (2.2%) and Q2 (4.9%). We expect production to accelerate somewhat in the fourth quarter to offset the sharp decline in inventories seen in the first estimate of Q3 GDP, which should provide support to hours and income in the coming months.
The household survey took a slightly stronger tone than the establishment survey. Household employment increased 277k, which, when combined with the 181k increase in the labor force, was sufficient to push the unemployment rate lower, to 9.0%. The three-month average increase in household employment now stands at 335k, much stronger than the 114k average gain in headline nonfarm employment. The labor force participation rate remained unchanged at 64.2%, where it has stood for most of this year.
BARCLAYS CAPITAL
ECONOMICS RESEARCH | INSTANT INSIGHTS