Why the Payrolls Report for October Wasn’t Really All That Weak

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The first Friday of just about every month brings the key unemployment and payrolls report from the U.S. Department of Labor. Similar to gross domestic product, it is the payrolls numbers that move the financial markets — and the official unemployment report that the public uses as a broad measure of the overall economic picture.

Some reports are weaker than expected and others stronger than expected. The problem in calling a report “weak” is that there may be serious issues and revisions that come into play. Some “weak” reports are strong after you look through the details.

Friday, November 3, was a weak report on the surface. Nonfarm payrolls rose 261,000 and private sector payrolls rose by 252,000 in October. These would be strong reports on their own merit, but after a weak September a snap-back gain was expected. Dow Jones was calling for a gain of 315,000 in total nonfarm payrolls. Bloomberg had a consensus target of 325,000 for nonfarm payrolls and 320,000 for the private sector payrolls.

At issue is that the revisions from the prior months took away what may have been some of the gains. The September nonfarm payrolls was revised to a gain of 18,000 from a preliminary loss of 33,000. The private sector payrolls revision for September went to a gain of 15,000 from a preliminary loss of 40,000. Neither is robust by any measure at all, except that hurricanes and some nonseasonal temporary issues were coming into play.

The Bureau of Labor Statistics (BLS) said of the hurricane impact:

Employment in food services and drinking places increased sharply, mostly offsetting a decline in September that largely reflected the impact of Hurricanes Irma and Harvey. In October, job gains also occurred in professional and business services, manufacturing, and health care. … Employment in food services and drinking places rose sharply in October (+89,000), following a decrease of 98,000 in September when many workers were off payrolls due to the hurricanes.

As far as why the headline report should not be considered weak on payrolls, the BLS also indicated that August’s nonfarm payrolls was revised to a gain of 208,000 from the preliminary report of 169,000. When you add in the positive September revisions, that added some 90,000 in nonfarm payrolls. So with the 261,000 in October you get a reading that would look far better and would be considered at or above expectations on a net basis.

One area that looked lackluster on the surface was a “no-change” in average hourly earnings, but this was a drop of one cent to be exact. Bloomberg had called for a 0.2% gain. In raw dollar terms, average hourly earnings for all private sector nonfarm payrolls was $26.53. Still, average hourly earnings in October were up by 63 cents for a gain of 2.4% over a year earlier.

The official unemployment rate was listed as 4.1%, but Bloomberg was calling for 4.2% as we had seen in September. A key driver here is that the labor force was lower in October. The seasonally adjusted civilian labor force was 161.146 million September, but this was about 760,000 lower at 160.381 million in October. The number of employed people was also 484,000 lower at 153.861 million.

The labor force participation rate decreased by 0.4 points to 62.7% in October. This has shown little movement over the past 12 months. The employment-to-population ratio declined by 0.2 points in October to 60.2%, but that was after rising 0.3 points in September.

The number of persons employed part time for economic reasons, the involuntary part-time workers, declined by 369,000 to 4.8 million in October. The BLS noted that the number of involuntary part-time workers has decreased by 1.1 million over the past 12 months. Also, there were 524,000 discouraged workers in October. In October, there were 1.5 million people who were classified as being marginally attached to the labor force.

The number of long-term unemployed is measured by those workers who are jobless for 27 weeks or more, In October, this was little changed at 1.6 million and accounted for 24.8% of the total number of unemployed.

All in all, this report would be considered weaker-than-expected on the headlines. That changes after you factor in the revisions for September and October, and then the trends still look better when comparing the large numbers to October of 2016.