Solid October jobs report Solid October jobs report\images\insights\article\virtual-meeting-woman-small.jpg November 6 2020 November 6 2020

Solid October jobs report

The labor market continues its positive momentum.

Published November 6 2020
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Bottom Line Despite numerous headwinds over the past month, including among the most contentious presidential election in U.S. history, no Phase 4 fiscal stimulus out of Congress and a third-wave spike in coronavirus infections, the private labor market continues to enjoy a powerful rebound from its April trough.

In this morning’s October report, nonfarm payrolls rose by a better-than-expected gain of 638,000 jobs (versus consensus expectations for a more muted increase of 580,000), with a positive revision of 15,000 jobs in August and September. But private payrolls in October surged by a much stronger-than-expected gain of 906,000 jobs (compared with consensus expectations for a gain of 680,000), with a positive revision of 21,000 jobs over the two previous months. The delta between private and nonfarm payrolls was a decline of 268,000 government jobs last month (versus a loss of 220,000 jobs in September), paced by the retirement of 147,000 temporary Census workers and 159,000 fewer state and local education-related jobs.

No white smoke yet? While President Trump performed much better on election day than the double-digit loss that many of the national polls had forecast, the steady drip of mail-in ballots in the key swing states over the last three days has undeniably flowed toward former Vice President Biden. So while we don’t have a president quite yet, that may change over the weekend, and it would appear that Biden is poised to win a close Electoral College race.

But that also raises a potential labor-market dilemma. Clearly, Trump’s fiscal policies have helped to engineer this powerful rebound in both the economy and the labor market over the past six months. If we’re about to switch horses mid-race, however, will the incoming Biden administration’s fiscal policies successfully maintain the direction and pace of this strong improvement? Only time will tell.

Labor market internals solid across the board The household survey soared by 2.243 million jobs in October, up sharply from a moderate gain of 275,000 jobs in September. Moreover, the civilian labor force increased by 724,000 workers last month, a sizable improvement over September’s decline of 695,000. Finally, the number of unemployed workers plunged by 1.52 million last month, compared with a decline of 970,000 in September.

As a result of these metrics, the unemployment rate (U-3) fell for the right reasons to a much better-than-expected 6.9% in October (consensus at 7.6%), down from 7.9% in September and sharply below its peak in April at 14.7% (the single worst month for the labor market since record-keeping began in 1939). So we’ve already recovered more than half of our jobs deficit, and that improvement of 7.8% over the past six months is by far the most dramatic recovery in the history of the labor market. The labor impairment rate (U-6) (also known as the underemployment rate) is a better and broader barometer of the labor market because it includes both part-time and discouraged workers. It plunged to 12.1% in October from 12.8% in September and a record high of 22.8% in April. Finally, the labor force participation rate rose to a better-than-expected 61.7% in October, up from 61.4% in September and a trough of 60.2% in April, which was a 47-year low.

In addition, average weekly hours worked were unchanged in October at a record 34.8, and average hourly earnings (AHE) ticked down to a year-over-year gain of 4.5% last month, which is down sharply from April’s peak at 8.0%. But that’s a strong positive, because it means that less-skilled and lower-paid workers are finding their way back into the labor force, which is driving average wages lower.

From a sector standpoint, leisure and hospitality rehired 271,000 employees in October; retail added 142,000 jobs (versus 23,000 last month), as companies gear up for Christmas; transportation doubled hiring to 172,000 (versus 85,000 last month) to accommodate a planned surge in deliveries from e-commerce sales; construction hired 84,000 workers last month (versus 35,000 in September), due to the strong housing market; and temporary help (an important leading indicator) hired 109,000 workers, compared with 22,000 in September.

Claims and ADP mixed Initial weekly jobless claims (an important leading indicator for the labor market) have plunged 89% over the past 31 weeks, from a peak of 6.867 million on March 28 to 751,000 on Oct. 31. Importantly, since the $600 weekly unemployment bonus expired, weekly claims have fallen by half from 1.435 million on July 25. Continuing claims have fallen by 71% over the past 24 weeks, from their peak at 24.9 million on May 9 to 7.29 million on Oct. 24. Since the unemployment bonus expired in July, continuing claims have plummeted by more than half from 16.1 million on July 25.

But the ADP private payroll survey posted a much weaker-than-expected gain of only 365,000 jobs in October, compared with an expected gain of 643,000 workers and September’s upwardly revised increase of 753,000.

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Views are as of the date above and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector.

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