October Jobs Report better, but with reservations

The U.S. economy got a surprise bump of 120,000 jobs which outpaced expectations of 90,000 reported the Labor Department, a figure that also came close to the monthly ADP report of private employers that showed 125,000, a none too frequent occurrence, but also one that got the usual kudos from the White House and some economists, who favor a more positive outlook, than others.

What did happen was a hit from the GM strike that dealt a body blow to a higher figure, but that most economists, and market observers, say will come back in November. And, while the year over year review may look spotty - there was a revised gain of 95,000 for August and September of 2019, giving cause for a solid, if not spectacular report for many.

There were some economists polled by Reuters, that predicted an even rosier report from the private market: “Economists. . .  had forecast the ADP National Employment Report would show a gain of 120,000 jobs, with estimates ranging from 40,000 to 190,000.”

Also encouraging was the fall out from GM, that some thought would be 50,000 but came in at 42,000, giving some credence to the resilience of the American economy.

“August’s initial 168,000 estimate came all the way up to 219,000 while September’s jumped from 136,000 to 180,000,” giving that total revision of 95,000.

The banner unemployment rate was 3.6 percent, a 50 year low, and another report that shows discouraged job seekers, and those that are stuck in part-time jobs, came close to 7 percent.

“The U6 jobless rate stood at 7.5% in September, the lowest rate since 2001. Except for a brief stretch from 1998 to 2001, the broader unemployment rate seldom drops below 8%.,” said Market Watch.

Wages, which have been a moot point for several months rose to “0.1% to a year-over-year 3% gain, also in line with estimates. The average work week was unchanged at 34.4 hours,” acknowledged CNBC.

“This report is yet another sign that the economy is still strong right now and adds to a list of indicators that are looking optimistic of late,” said Steve Rick, chief economist at CUNA Mutual Group. “The vigor of this labor market, along with a more positive housing market and solid Q3 GDP, should offer some welcome reassurance.”

Federal Reserve Cut and weak wage growth

This seems to be supported by the Federal Reserve cutting interest rates for the third time this year, with a cumulative range of 0.75 percent, and that some economists are saying is insurance for a good economy, but also serves as a “just in case” tool to address decreased business inventory, trade tensions with China, job weakness, and continued nervousness over the Brexit deal being orchestrated by UK Prime Minister Boris Johnson.

Also from CNBC, Citigroup economist Andrew Hollenhorst, who said, “The October jobs report is unambiguously positive for the US economic outlook,” and “Above-consensus hiring in October, together with upward revisions to prior months, is consistent with our view that job growth, while clearly slower in 2019 than in 2018, will maintain a pace of 130-150K per month. Wage growth remaining at 3.0% should further support incomes and consumption-led growth.”

“Hourly wage growth has been anemic for much of the recovery, and has stalled again recently. Average earnings growth picked up slightly in October, and was also revised upward for September, but growth has slowed over the past year,” noted The New York Times.

“Weak wage growth is a challenge not just for workers but also for the broader economy. The length of the average workweek has also fallen slightly, particularly in manufacturing. Without more pay and more hours, it will be hard for consumers to keep spending more money.”

As noted, in this space many times, wages at 3.0 percent may seem better than worse, but the figure is baffling for a tight labor market, and some are pushing this aside, since consumer demand is strong, and some see that relatively low wages may be besides the point.

One of them is Ben Herzon, an economist for Macroeconomic Advisers by IHS Markit, a forecasting firm, who stated, to the Times, “As long as confidence remains pretty elevated, as long as job gains continue albeit at a slower pace, and as long as those job gains continue to deliver wage growth, consumption should continue to drive the economy.”

  

Getting ahead to go along

CNN Business reported that “Powell, and others, have argued central banks should get ahead of a downturn after seeing any signs of weakness to get more bang for their buck in such a low-interest rate environment.”

The chatter of a pending recession, may have been premature, and economists are seeing this consistent with October, which may in, and of itself, be premature.

“It helps reduce the concern that the slowdown was becoming more broad-based and recession risks were right around the corner,” said Michael Gapen, chief United States economist for Barclays, “I think most people have a slightly more positive view of the U.S. economy now than even two or three weeks ago.”

If this is Tuesday, it must be a good omen, say others, without reservation, and rounding up the group of cautious optimists is Julia Pollak, a labor economist for ZipRecruiter, an online job marketplace, who said, “It’s still respectable;. Slow and steady is not necessarily bad.”

“The question is always, ‘compared to what?’” said Oren Cass, a senior fellow at the Manhattan Institute, a right-leaning think tank. “We should certainly celebrate that the unemployment rate is low and that the expansion has gone on as long as it has.” At the same time, he said, “if you ask how does this look relative to 2006-2007 or 1999-2000, it just doesn’t look as good on almost any metric.”

The fight for workers continues unabated since the end of 2018, and companies are vying for workers and dismissing college degrees and certification in the hopes of finding, and retaining a solid workforce, yet this is also part of the wage conundrum.

Even as far back as a year ago, there was some optimism about increased wages: “How hot is the labor market? Hot enough for employers to pony up some more cash to get workers to come work for them,” wrote Chris Rupkey, chief financial economist at MUFG Union Bank, in a note to clients,” last October.

“Hiring last year got a push from the 2017 tax cuts, so some slowdown was to be expected as the effects of the cuts wore off. The question is whether hiring stabilizes at a somewhat lower level or continues to fall. Friday’s report, though only a single data point, suggests stabilization is more likely.”

The devil is in the details, but layoff outlook improves

Manufacturing has weakened by 36,000 jobs, and the Institute for Supply Management, said, in part, “October was the third consecutive month of PMI® contraction, at a slower rate compared to September. Demand contracted, with the New Orders Index contracting marginally, the Customers’ Inventories Index moving into ‘about right’ territory and the Backlog of Orders Index contracting for the sixth straight month (and at a faster rate).”

As noted, consumer confidence is very strong yet it’s easy to see a scenario where employers begin to layoff, since even 3.0 wage growth can’t lead to runaway spending.

Supporting that view, is the ever pragmatic Diane Swonk, chief economist for the accounting firm Grant Thornton, in Chicago, who said, “At some point in time, either the business sector has to come back or the consumer will falter.”

“We could accept data that shows weakness in manufacturing,” said Michelle Meyer, head of United States economics for Bank of America Merrill Lynch. “Where it becomes a lot more problematic is if that weakness is spreading. We were starting to see indications of that the last few months, but they’ve now been revised away. It’s painting a brighter picture of the service sector of the economy.”

“But the service sector has remained strong. Hotels and restaurants added more than 50,000 jobs in October, and even the struggling retail sector posted a second straight month of gains after months of steady losses. And revisions to earlier data erased hints that the slowdown was spreading.”

Layoffs have been a concern and leading the pack of optimists was Jeffrey Bartash of Market Watch who wrote, “Don’t read much into any increase in the unemployment rate. The pace of layoffs have clung near a 50-year low since the start of the year and have shown no sign of rising. Businesses aren’t hiring as many workers, but they’re not firing many, either.”

“Job cuts announced by U.S.-based employers jumped to 50,275 in October, 20.97% higher than the 41,557 announced in September, according to a report released Thursday from global outplacement and business and executive coaching firm Challenger, Gray & Christmas, Inc.” in their press statement.

“Last month’s total is 33.5% lower than the 75,644 cuts announced in the same month last year. October was the second consecutive month during which cuts were lower in 2019 than in the corresponding month one year earlier,” they added.

“For the most part, job cut announcements are holding steady as we enter the final quarter of the year. We’ve seen increases in certain industries, particularly those experiencing disruptions from new technologies, uncertainty from government regulation or issues with trade, or slumping from demand shifts,” said Andrew Challenger, Vice President of Challenger, Gray & Christmas, Inc.

Getting into the nitty gritty, “At the industry level, the biggest job creation came in food services and drinking establishments, which added 48,000. While those positions are generally associated with lower wages, they also can reflect consumer demand and the willingness to spend discretionary money. The industry has seen a surge in job creation as of late, with the past three months averaging 38,000 compared with 16,000 in the first seven months of this year.”

Many Americans, however, are wondering where is the party. Earlier this year Heather Long in The Washington Post posed a question that still resonates, stressing that this is “a two-tier recovery” with 60 percent of Americans benefiting and 40 percent with “paltry or volatile wage growth, rising expenses for housing, health care and education and increased levels of personal debt.”

For a worrisome President Trump, facing impeachment, and a bitter 2020 reelection, it bears noting that he inherited an economic recovery from President Obama, said Rick Newman in Yahoo.com, and there is still a slowdown, “In 2014, when employment growth peaked, the economy created 251,000 jobs per month, this year the average has been 172,000.”