Economic Commentary – October jobs report

Economic Commentary

November 5, 2021

Nothing scary about strong October job gains, though continued educational losses are a little spooky

Executive summary

U.S. payrolls in October jumped by 531,000, beating the consensus expectation of 450,000. That was paired with sizable upward revisions to the prior two months. Meanwhile, the unemployment rate slipped to 4.6% from 4.8%.

Some of October’s strength is the result of pandemic-support programs expiring in September, pushing more workers back into the labor force. More importantly, there are many signs of strength, with solid hiring across most industries. Leisure & hospitality led the way. Temp hiring, which tends to lead to permanent jobs, hit an 8-month high. Additionally, wage growth continues to surge for rank and file employees, which leads to more economic growth. Still, local and state schools shed 65,000 educational jobs in October. That’s the third straight month public schools have cut teachers, which seems out-of-step with other data.

Looking ahead, we expect more month-to-month swings as workers hold out for higher wages and employers balk. Ultimately, this report supports our view the U.S. economy has reaccelerated following third quarter softness due to the delta variant, which punched growth. Furthermore, we expect above-trend economic growth heading into 2022.

A review of the major industry trends

Private payrolls increased by 604,000 workers in October, but government payrolls dropped by 73,000. Service-providing industries added 496,000 positions, while goods producers hired 108,000 workers.

One major industry group, government, lost jobs during October.

  Monthly change by major industry group (in thousands)

 

The leisure & hospitality industry group rose sharply in October, adding 164,000 jobs, nearly double the upwardly revised 88,000 in September. The bulk were at restaurants and bars, which added 142,600 workers. Also, August was revised to a modest gain of 7,500 rather than cutting 24,700 positions. Still, overall leisure & hospitality remains 1.4 million jobs below pre-pandemic levels.

We remain perplexed by the trend of educational positions. Local and state schools shed 43,000 and 22,000, respectively, or 65,000 total in October. That’s the third straight month public schools have cut teachers, which seems out-of-step with other data. Moreover, nearly all U.S. schools are back in-person. Private education employers swung to a positive, adding 17,000 positions in October. We suspect seasonal adjustments were the culprit for the weakness, which should be revised in the coming months. Excluding education, government payrolls lost 8,000 workers in October, equally spread across federal, state and local levels.

Tucked within the professional & business services  group, temporary help services—commonly known as temp hiring—added 41,100 workers during the month, an 8-month high. Temp hiring typically leads to permanent jobs.

Strong wage and income growth continues

Wage and income growth continued to increase in October. Average hourly earnings increased 4.9% from a year ago, well above the 2019 average of 3.3% and more than double the 2.4% average for the decade before the pandemic (2009 through 2019).

More importantly, average hourly earnings for production & nonsupervisory employees jumped to 5.9% year over year. Excluding the large spike last year for so-called hero pay for front-line workers and pandemic-related bonuses many employers used to entice workers, it was the fastest annual growth since 1982. Most of those programs have expired in 2021 (hence the large year-over-year decline this past spring), though some are still giving bonuses for vaccinations, while a few have maintained hero pay.

The pace of wage growth for rank and file workers is also well above the 3.6% pace during 2019 and the 2.4% average from 2009 through 2019. This is important insofar as production & nonsupervisory employees are the bulk of all employees.

 

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