Highest Labor Force Participation Rate Since August 2013

Very Strong Jobs Report Because Of Positive Revisions

Let’s look at it the October labor report. This employment report was very strong. It explains why stocks rallied sharply on Friday. And it fully explains why the CNN fear and greed index hit 80 on Friday. There were fears that this jobs report would end the streak of job creation. 

Remember, the Markit report implied there would be 50,000 jobs added. Bank of America projected there would be only 25,000 jobs added. Most negative projections get a lot of play in the media because fear sells.

This report quelled all of the bearish fears. It was amazing. I say it was amazing principally because of the big positive revisions in the last 2 months. Revisions have a better chance of being accurate than the latest data. In August, job creation improved from 168,000 to 219,000. 

In September, job creation was revised from 136,000 to 180,000. That’s a combined 95,000 increase. Keep in mind, for the unemployment rate to stay where it is, assuming the labor force participation rate stays where it is, there needs to be 80,000 jobs added each month. Those past 2 months of job creation blew that away.

Similarly, the October reading was above that as there were 128,000 jobs added which beat estimates for 90,000. That’s even with the government subtracting 3,000 jobs and the GM strike subtracting 42,000 jobs. As you can see from the chart above, the 3 month average of job creation has recently increased. 3 month average is 176,000 and without the GM strike, it is 190,000. 12 month average still shows a bit of a slowdown because of earlier reports this year. It is 174,000 and 178,000 without the GM strike.

Where The Jobs Were

Almost half of the jobs created were in leisure and hospitality as this industry added 61,000 jobs. That is 46.6% of the total. Some think this is a negative because this industry will quickly shed jobs. In looking at the industry’s historic job creation, it appears to be in line with the rest of the labor market. 

Low wage jobs are cut the most in recessions, so that’s a negative. This gets at the real reason this is a problem. As you can see from the chart below, leisure and hospitality only pays workers $16.69 per hour which is the lowest out of any industry. This industry adding jobs at an accelerated clip lowers overall wage growth.

Average hourly pay is $28.18 which is right near the $27.67 paid to workers in education and healthcare. That industry has been a big driver of job creation recently; it added 34,200 jobs in October. There was weakness in professional and business services which only added 22,000 jobs and pays workers $34 per hour on average. 

Manufacturing lost 36,000 jobs, but it actually gained 6,000 jobs excluding the GM strike. That’s pretty strong in comparison to the ADP report which showed -4,000 jobs and the weakness in the industrial production report. Finally, keep in mind, that because the government lost 3,000 jobs and it was expected to add zero jobs, private sector job creation beat estimates by 41,000.

Unemployment & Labor Force Participation Rate Show Differing Results

The unemployment rate increased from 3.5% to 3.6%. It’s not exactly high as last month it was the lowest since December 1969. Keep in mind that whenever there are charts showing states’ unemployment rates, there will always be some states with increasing rates. It needs to increase to about 4% without the labor force participation rate rising for me to get worried. And, the underemployment rate increased from 6.9% to 7%. It was near its record low, so this small increase isn’t a problem.

There was a nice increase in the labor force participation rate as it improved from 63.2% to 63.3% which beat estimates by 0.2%. That’s the highest rate since August 2013. This shows even the aging population can’t stop more people from working in this relatively tight labor market. 

Similarly, the prime age labor force participation rate increased from 82.6% to 82.8% which is tied for the highest rate of this expansion with the first 2 months of the recovery. Last cycle it peaked at 83.4%. The record high is 84.6%.

The chart below adjusts the employment to population (EPOP) rate for age and sex. As you can see, the demographically adjusted employment to population rate is above the average from 1999-2000. That’s interesting because job creation is still above population growth, implying the labor market isn’t full. If you’re a bull, you want the EPOP rate to improve and stay high, but you don’t want the labor market to be full. More slack means more growth potential.

Solid Wage Growth

Average hourly earnings growth was 3% which matched the previous month’s growth rate which was revised up 0.1%. Because of a tougher comp, the 2 year growth stack increased from 5.98% to 6.36%. The work week was 34.4 hours which was unchanged. 

Weekly wage growth was 2.74% which is down from the peak of 3.63%. CPI has also fallen which lessens the blow for real wage growth. We will know what real wage growth was in October after the CPI report comes out on November 13th. Low wage growth was still the strongest as you can see from the chart below. Production and non-supervisory wage growth was 3.49%.


This was a very strong labor report because the previous 2 months were revised to show 95,000 more jobs were created. Job creation in October beat estimates and growth would have been even better without the GM strike. Leisure and hospitality added almost half of the jobs created, but when you exclude the GM strike it’s about a third. 

The demographically adjusted employment to population rate implies the labor market is full. But job creation has recently been way above population growth. Wage growth for low wage workers is the highest. Mostly because the labor market is tight and individual states raising their minimum wages. 

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