The employment situation is a set of labor market indicators. The unemployment rate measures the number of unemployed as a percentage of the labor force. Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls. Why Investors Care
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Highlights
October job growth proved disappointing as non-farm payrolls rose a much smaller-than-expected 56,000. Net revisions to September and August were also disappointing, down 36,000.
The Labor Department said the weak growth was probably not tied to Katrina, and that job growth outside the Gulf Area was below trend. It did note, however, that high gas prices could have dampened the jobs market including hiring in vacation industries. It said Hurricane Rita had only a minimal impact, while Wilma hit too late in the month to be included in the data. In a special note offering a clue of the immense suffering and dislocation caused by the season's hurricanes, the Labor Department said 800,000 people left the Gulf with 500,000 still having not returned. It estimated the unemployment rate for Katrina evacuees at 33%.
Overall weakness was centered in service-producing jobs, which rose only 7,000. Retail trade declined 5,000 with a sharp 8,000 decline at auto dealers whose sales suffered badly in the month. Leisure jobs showed special weakness, down 18,000.
In contrast, goods-producing jobs rose a solid 49,000 in the month. Construction rose a sharp 33,000, perhaps reflecting Gulf rebuilding. Manufacturing was a big plus in the data, rising 12,000 and confirming the accuracy of the ISM manufacturing report which has been reporting strength in the sector.
A big negative in the report was a sharp rise in average hourly earnings, up a big 0.5% in the month to $16.27. The year-on-year rate is on the rise at 2.9%. But the impact of the rise on the inflation outlook may be softened by yesterday's strong productivity report that showed a slowing rate of wage gains in the third quarter. The average workweek was unchanged though manufacturing hours did show a sharp gain.
Data from the household survey showed less weakness with the unemployment rate falling 1 tenth to 5.0%, but the gain came as a result of a contraction in the labor force. The employment-to-population ratio showed slight improvement, up a tenth to 62.9%.
The financial markets showed a mixed, limited reaction to the report. The bond market initially moved higher on the headline payroll total but edged back perhaps on the big hourly earnings gain. October's employment report is a bit of a mixed bag, but on the whole points to slight slowing in economic growth. But with Gulf rebuilding still ahead, boosted by an apparently recovering manufacturing sector, the economic outlook is still solid.
Nonfarm payroll employment declined 35,000 in September. The initial estimate was actually stronger than estimated as employment growth outside Katrina-ravaged areas was showing healthy momentum. Nonetheless, one should not discount the lost jobs. The civilian unemployment rate increased 0.2 percentage points to 5.1 percent in September largely due to the negative impact of hurricane Katrina.
Nonfarm payrolls Consensus Forecast for Oct 05: 110,000
Range: -25,000 to 300,000
Unemployment rate Consensus Forecast for Oct 05: 5.1 percent
Range: 5 to 5.2 percent
Average workweek Consensus Forecast for Oct 05: 33.7 hours
Range: 33.7 to 33.8 hours
Average hourly earnings Consensus Forecast for Oct 05: 0.2 percent
Range: 0.2 to 0.4 percent
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During the mature phase of an economic expansion, monthly payrolls gains of 150,000 or so are considered relatively healthy. In the early stages of recovery though, gains are expected to surpass 250,000 per month. |
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The civilian unemployment rate is a lagging indicator of economic activity. During a recession, many people leave the labor force entirely, so the jobless rate may not increase as much as expected. This means that the jobless rate may continue to increase in the early stages of recovery because more people are returning to the labor force as they believe they will be able to find work. The civilian unemployment rate tends towards greater stability than payroll employment on a monthly basis. It reveals the degree to which labor resources are utilized in the economy. |
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