The October employment report was kinda' like kissin' your sister … a little tingle here and there, but not all that exciting (actually I never had any sisters!) The report did support the idea that modest U.S. economic growth is likely to continue, with a lesser chance of a renewed recession.
The American economy added 80,000 net new jobs during October, less than the 100,000 net new jobs expected by forecasting economists. Better news saw the two prior months' job creation estimates revised higher, with a net gain of 102,000 additional jobs over the two month period.
August employment gains were revised from 57,000 net new jobs (already revised once) to 104,000 jobs. Not bad for a month whose initial estimate on Sept. 2 was no change whatsoever in total employment. September's estimated gain was revised from 103,000 jobs to 158,000 jobs.
Still, the 80,000 net new jobs total in October was the weakest of the past four months. At the same time, the October gain was the 13th consecutive month of employment gains after 25 brutal months of job losses from early 2008 to early 2010. The 2.2 million net jobs gained since the beginning of 2010 offsets only one-quarter of the 8.8 million jobs lost during the Great Recession (see the kissin' your sister analogy?)
Better news saw the nation's unemployment rate decline slightly to 9.0 percent in October after being fixed at 9.1 percent the three prior months. The consensus view had the rate remaining unchanged. Still, the nation's unemployment rate has averaged 9.0 percent over the past three years, with only limited prospects of any sizable decline (hey sis!)
Most estimates of the unemployment rate on Election Day 2012 (now less than one year away) are between 8.5 percent and 9.0 percent. If I can offer this tidbit one more time … no sitting American president has been elected to a second four-year term in the past 75 years with an unemployment rate above 7.2 percent. Also as noted before, the President's focus now and likely throughout 2012 will be on a job creation agenda … it ain't rocket science.
The two surveys
With data as released last Friday, one might ask how a less-than-expected gain in jobs leads to an unexpected decline in the nation's jobless rate. The answer remains a tale of two surveys …
The "official" job creation number — in this case a net gain of 80,000 jobs in October — was derived from a survey of roughly 400,000 medium- and large-sized businesses operating within U.S. boundaries, known as the "establishment survey."
The unemployment rate comes from a smaller and usually more volatile survey of roughly 60,000 households … known surprisingly enough as the "household survey." This survey in October estimated the labor force to have risen by 181,000 people … estimated total employment to have risen by 277,000 people … estimated the number of unemployed people to have declined by 95,000 … and presto change-o, a 9.0 percent unemployment rate.
Many practitioners of "the dismal science of economics" would suggest that the household survey is better at picking up changes in self-employment and the expansion or contraction of employment at very small firms than is the much larger establishment survey. Over time, the two surveys will typically move closer together.
The nation's goods production sector lost an estimated 10,000 jobs during October, with the loss of 20,000 construction jobs more than offsetting a gain of 5,000 jobs in both manufacturing and mining & logging. According to the Bureau of Labor Statistics of the U.S. Department of Labor, employment in both residential and nonresidential construction has shown little net change in 2011.
Meanwhile, the nation's manufacturing sector has been flat during the past three months. The nation's mining & logging sector has added 152,000 net new jobs since a low point in October 2009.
The nation's private service providing sector registered the addition of 114,000 net new jobs in October, led by a gain of 32,000 jobs in professional & business services. The "p & bs" sector has added an estimated 562,000 jobs during the past 12 months. The education & health services sector added 28,000 net new jobs during October, with 12,000 of those in health care employment. The health care sector has added 313,000 jobs during the past 12 months.
Leisure & hospitality employment rose by 22,000 in October, with an estimated gain of 344,000 jobs since a low point in January 2010. Retail trade added 18,000 jobs last month, with a gain of 156,000 jobs during the past 12 months. According to the BLS, employment in other major sectors including wholesale trade, transportation & warehousing, information, and financial activities changed little during October.
And then there is government. Total government employment declined by an estimated 24,000 jobs in October, with most of the decline in the non-educational component of state government. Total sector employment is down 288,000 jobs so far this year. Employment in both state government and local government has been trending down for the past three years as budget pressures have been intense.
The average hourly wage for all employees on private nonfarm payrolls rose by five cents (up 0.2 percent) to $23.19 in October. The rise of 1.8 percent during the past 12 months pales versus the 3.9 percent rise in consumer prices over roughly the same time period.
The "underemployment rate" … that which includes the unemployed, those working part-time who would prefer to work full-time, and those discouraged workers who are not seeking a job but would accept one if offered to them … declined to 16.2 percent versus 16.5 percent the prior month
Modest U.S. economic growth with modest job gains appears the most likely scenario at this point. However, developments across Europe could blow that forecast out of the water.
Whether or not the Congressional "super committee" of six Democrats and six Republicans accomplishes anything of value also remains to be seen. Their report on how to slow government spending by $1.2 trillion over 10 years is due no later than Nov. 23. I would suggest that an announcement of a major plan to trim deficits by at least $3.5 trillion over 10 years could be worth 300-500 points on the upside for the Dow average. Conversely, an announcement that polarizing politics remains the status quo, with no agreement at all, could cost the Dow average a similar amount.
Jeff Thredgold is the chief economist for Zions Bank and founder of Thredgold Economic Associates, a professional speaking and economic consulting firm. Visit www.thredgold.com.
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