Food Services Hiring Offsets GM Strike Losses

Payroll employment rose 128,000 in October, with a surge in hiring in food services offsetting losses in manufacturing due to the GM strike. We also lost 20,000 temporary workers from the 2020 Census who were checking addresses. Many of those workers already had jobs driving taxis, Uber or Lyft.

Revisions over the last two months were to the upside. Retail trade and leisure and hospitality accounted for much of the upward revisions. Monthly payroll gains have slipped from an average of 223,000 in 2018 to 167,000 in 2019.

Gains in October were driven by food services, professional services, social assistance and health care. The surge in food services was particularly large as consumers have shown signs of trading down in their restaurant spending. They moved to less expensive and fast-food options from upscale restaurants over the summer. That has clearly seeded demand for low-wage workers.

The jump in social assistance and health care jobs reflects the increase in people now in their 80s and, to a lesser extent, the aging of the baby boom. Professional services hiring has slowed fairly significantly over the year. Temporary hiring actually fell. Wages in professional services have bucked the slowing trend and accelerated in recent months, suggesting the weakness there is more due to worker shortages than a lack of demand.

Job losses were largest in manufacturing and mining. Manufacturing employment fell 36,000. Losses due to the GM strike topped 50,000, which means gains elsewhere in motor vehicles (probably at competitors) helps to offset those losses. Manufacturing outside of vehicle production actually increased during the month, which is welcome news. Losses in the mining sector worsened as oil rigs were idled. Bankruptcies in the shale industry and lower oil prices suggest mining will remain weak in the months to come.

Average hourly earnings moved up 0.2% in October from September, and were up 3% from a year ago. That is better than we saw in August but marks a deceleration in wage gains from earlier in the year. The surge in wages for the least skilled jobs appears to be playing out. Many of the workers earning more per hour in retail, for instance, are now working fewer hours a week than they did when their wages were lower. Hours worked fell from a year ago in retail and leisure and hospitality. Some employers have reduced hours worked and cut back on hiring to limit their wage bills. Big-box discounters actually posted a drop in employment during the month. The benefits portion of the employment cost index has decelerated significantly, which is unusual this late in the cycle.

Separately, the unemployment rate edged up a tick to 3.6% in October along with the participation rate. One reason wages have lost momentum since the start of the year is because more workers on the sidelines are rejoining the labor market. That is welcome news for the long-term unemployed, but limits raises for the employed.

Hours worked per week edged down over the month and compared to a year ago. Workers are working about 45 minutes less per week than a year ago. The strike at GM was only one of many reasons for that weakness. Firms are trading wages for hours worked in the service sector as well.

Bottom Line
Payroll employment held up better than expected in the wake of the GM strike. Part of that is due to a surge in hiring in food services. We also saw some firming outside of the vehicle sector in manufacturing. More worrisome is the loss in hours worked in the service sector and the deceleration in wage growth. Low-wage workers are no longer driving wage gains.

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