November 4, 2016—Job growth came in at 161,000 in October, just slightly higher than the 150,000 we had predicted. This is also very much in line with the ADP employment report from earlier in the week, which said 147,000. We have pointed out in past posts that the ADP report might be better at showing the month-over-month tracking as it has been less volatile than the official jobs report. But this month they are very much in line with one another, supporting our assessment that 150,000 per month is the underlying trend rate in the economy. Job growth has clearly come down from the stronger period in 2014 and 2015 when it was closer to 3 million per year. The most recent 12 months is a still-healthy 2.4 million.


Source: Bureau of Labor Statistics

The labor force and job growth

The labor force declined by 195,000 in this report, but that is a bounce back from +444,000 the previous month. The household side of the survey (which gives us labor force, the number of unemployed people, and the unemployment rate) has a much smaller sample than the establishment survey (which gives us job growth) and is much more volatile on a monthly basis due to statistical noise. The longer-term comparison of labor force growth and job growth is unchanged, with the former up 2.6 million over the past 12 months while jobs were up 2.3 million. This movement into the labor force is an encouraging sign that people are responding to job openings and higher wages.


Source: Bureau of Labor Statistics

The labor force growth described and shown above alleviates some of the tightness in the labor market, but is not enough to keep back the wage pressure that we have recognized for the past year or so. Average hourly earnings were up 2.8% in October, the highest growth rate since June 2009 when it was on the way down. With the unemployment rate low (it ticked back down to 4.9% in this report) the labor market is tight enough to drive those higher wages. As we have discussed in the past, we believe wage growth facing individual firms is greater than reflected by the average wage growth shown in this report. This figure is weighed down by retirement at the high end and hiring at the lower end of the wage spectrum. Individual firms are facing higher wage pressure, more like the 3.6% median wage growth reported by the Atlanta Fed (not shown here).

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Source: Bureau of Labor Statistics

Core narrative
The jobs report came in just a bit stronger than we expected, and is very supportive of our assessment of a sturdy labor market that is still expanding, but has slowed because of tightness. That tightness naturally leads to higher wage growth. This assessment of labor market tightness keeps the Fed on track for their December rate hike, which we still expect barring any shocks between now and then. As of this morning the Fed Funds Futures market was pricing in a 78% chance of a hike next month.


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