October Employment Report Looks Weak

Payroll employment is expected to rise a negligible 10,000 for October after slowing to a 136,000 pace in September. That would mark the weakest month for hiring since an actual drop in the monthly payroll survey in Fall of 2010. A perfect storm of external shocks is expected to exacerbate our read of weakness during the month. Everything from the GM strike to the completion of work by temporary census workers and rolling blackouts in California took a toll on hiring in October.

The GM strike directly removed a little more than 48,000 from manufacturing payrolls in October, despite a resolution late in the month. GM and its suppliers will not be fully up and operating again until next week. An estimated 75,000 workers at suppliers suffered either a loss in hours worked or layoffs. Many of those losses, however, occurred after the survey week for the employment report, which ended on October 12. There were also spillover effects for leisure and hospitality as restaurants in towns with idled plants took it on the chin.

Census hires are expected to be a negative during the month after adding to payrolls over the summer. Some 32,000 temporary hires, most of them gig workers who checked addresses in the field, finished up on October 11. The losses associated with those temporary hires will show up in October and November. Census is currently doing interviews for new hires in January.

Finally, rolling blackouts were used to prevent and limit the spread of wildfire, starting the week that the employment survey was taken, October 8-10. This should show up as a loss to employment and reduction in hours worked for those who couldn’t make it to work during the worst of the outages.

This is at the same time that mining and retail employment are expected to show additional losses. Mining is contracting in response to lower oil prices and a surge in bankruptcies in the shale industry. Retail peaked in 2017 and continues to suffer from the pivot to online shopping. Online shopping requires fewer direct retail hires, while the largest online retailer (Amazon) is relying more on robotics to fill orders and keep warehouses operating in a tight labor market.

The only bright spots are expected to be new hires in professional services and health care. Temporary hires are not playing the role that they once did in boosting professional hires; more hiring is occurring in full-time jobs than we saw in the past. Health care is benefitting from the aging of the baby boom and a surge in the number of people now in their 80s.

Average hourly earnings are expected to pick up slightly after losing ground in September. A 0.3% monthly gain could push the year-over-year increase in average hourly earnings to 3%. That would mark a modest improvement over the gains in September, but still a deceleration from the peak of 3.4% in February. The deceleration in wages has proven to be disappointing, given the number of households that suffered blows to their hourly earnings in the wake of the financial crisis.

Separately, we expect the unemployment rate to rise to 3.7% for October after hitting a low of 3.5% in September. Much of the increase reflects the spillover effects of the GM strike. Actual striking workers are not included as unemployed, but workers who are laid off in response to the strike are.