Payroll employment jumped by 250,000 in October following downward revisions in the wake of Hurricane Florence in September. Hurricane Michael was much more devastating than other hurricanes but hit a smaller area; as a result, the impact on employment got washed away in the aggregate data.
Gains in October were broad-based with continued strength in leisure and hospitality, health care, professional services, manufacturing, construction and the red-hot warehousing and transportation sectors. The gains in health care derive from two trends: a sharp increase in demand for elder care and a surge in baby boomer retirements, most notably among nurses.
The professional hires continue to buck the trend seen earlier in the cycle and during the boom of the 1990s when firms preferred more flexible, temporary workers as opposed to full-time hires. Manufacturing gains were driven by a rise in production of transportation equipment. At least a portion of those gains reflected the push to stock up ahead of more tariffs. Many manufacturers attempted to buy parts ahead of the most recent increases in tariffs on China.
Both average hourly earnings and the number of hours worked moved up during the month, which suggests a nice boost in incomes prior to the holiday season. Average hourly earnings were particularly strong, up 3.1% from one year ago. However, Hurricane Irma artificially suppressed average hourly earnings during the same period last year, which means we could lose ground on growth in average hourly earnings again in November (i.e., wages are warming, but remain modest after adjusting for inflation).
Separately, the unemployment rate held at 3.7%, a 48-year low, for all the right reasons. The participation rate picked up, especially among young and prime-aged workers, both men and women. The participation rate among workers aged 35-44 jumped almost one full percentage point for the month.
The U-6, a better measure of stress in the labor market because it includes involuntary part-time workers, slipped to 7.4%, which is down 0.6% from a year ago. However, the U-6 remains above the 6.8% low during the height of the 1990s boom.
The labor market continues to improve and is finally pulling in people who were sidelined by the financial crisis. Wages are moving up but not as fast as the headline suggests. Benefits have yet to come back to the pace of growth we saw during the 1990s, despite reports by employers that they are giving their employees more benefits. Flexibility and ping-pong tables are not the same as permanent benefits such as health care, 401(k)s and childcare.
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