Thursday, 15 of November of 2018

Economics. Explained.  

Payroll Employment

November 2, 2018

Payroll employment for October surged by 250 thousand after having climbed by 118 thousand in September.   The October increase was somewhat larger than anticipated which counters the smaller-than-normal increase in September.   In our opinion, the outlook for employment has not changed much in the wake of this report.  The Bureau of Labor Statistics indicated that Hurricane Michael that made landfall in the Florida Panhandle on October 10 had no discernible effect on either the employment or unemployment estimates for October.

A better reading of what is truly going on is represented by the  3-month moving average of private employment which is now 218 thousand.  That compares to an average increase of 180 thousand in 2017.  Thus, employment continues to chug along.  The labor force is growing by about 180 thousand per month.  For employment gains to be consistently larger than the increase in the labor force implies some people not previously in the labor force are choosing to return (like discouraged workers).

Amongst the various employment categories construction employment rose 30 thousand in October after expanding by 20 thousand in September.    The trend increase in construction employment appears to be about 30 thousand per month.  But what seems to be important is that the monthly gains in this category seem to be gradually getting larger.

Manufacturing employment jumped 32 thousand in October after having risen 18 thousand in September.    Factory employment is now rising by about 25 thousand per month and, like construction employment, the monthly increases seem to be gradually getting larger.  Employers seem to be finding additional workers.

Mining rose 5 thousand in both September and October.  After a long period of steady declines mining employment is now rising about 5 thousand per month as rising oil prices are boosting hiring in that  sector.

Elsewhere, health care and social assistance climbed by 47 thousand.  Professional and business services increased 35 thousand in October.  Transportation and warehousing climbed by 25 thousand.  Employment in leisure and hospitality establishments jumped 42 thousand in October.  Retail jobs rose 2 thousand.

In any given month employers can boost output by either additional hiring or by lengthening the number of  hours that their employees work.  The nonfarm workweek rose 0.1 hour to 34.5 hours in October after a similar-sized decline in September  That is  about as long as it gets.  The  elevated level of the workweek  implies that employers are in need of workers and will continue to hire at a meaningful pace in the months ahead.

The increases in  employment and hours worked are reflected in the aggregate hours index which rose 0.5% in October after declining 0.3% in September.  Thus, it rose 1.1% in Q3.

There is no doubt that the consumer sector of the economy is expanding at roughly a 2.5% pace.  Individual  income tax cuts should slightly boost spending in 2019.  The stock market had a tough month of October but seems to be rebounding and should reach new highs before too much longer.  Consumer confidence is holding up well and has shrugged off the October decline in the stock market.  Remember that consumer spending represents two-thirds of total GDP.

The sector of the economy that had previously been weak was the various production industries.  But that has now turned upwards.  As noted earlier, factory employment is gathering momentum.  Construction employment has been rising steadily.  And even mining has been rising somewhat after a steady series of declines associated with the drop in oil prices.

Looking ahead the prospect of both individual and corporate income cuts and the repatriation of some overseas earnings currently locked overseas should boost GDP growth from 2.5% in 2017 to 3.0% this year and 2.9% in 2019.

Stephen Slifer

NumberNomics

Charleston, SC


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