December 04, 2023
The pace of job growth slowed sharply in October, with a reported gain of 150,000 jobs. This is within the ballpark of what most economists would consider a sustainable pace, even with an unemployment rate below 4.0 percent. We are likely to see a slightly higher number in November, in part because the end of the United Auto Workers’ (UAW) strike will add close to 30,000 jobs. We will also see some bump in employment from the ending of the strike by the Screen Actors Guild (SAG), although the full effect will probably not be seen in the November data.
The Gap Between the Household and Establishment Surveys Could Narrow
One of the paradoxes in recent months’ reports has been the rise in the unemployment rate from 3.4 percent in April, to 3.9 percent in October, even as the establishment survey was reporting a pace of job growth that far exceeds most estimates of the normal growth in the labor market. This is not a story of more people entering the labor market; the household survey shows a gain in employment of just 191,000 over this six-month period, while the establishment survey shows an increase of 1,234,000 jobs.
It turns out that this gap can be explained by differences in concept. There was a huge increase in the number of multiple job holders reported between April and October, as well as a large drop in self-employment.
Each job held by a multiple job holder would of course be counted separately in the establishment survey, while they are only counted once as an employed person in the household survey. Self-employment is not measured at all in the establishment survey.
However, the data in the household survey are highly erratic, so we may see the gap reappear in November, even after adjusting for differences in concept. In any case, it is hard to believe that the unemployment rate can be rising a great deal when we are creating over 200,000 new jobs a month. Other data, like quit rates, vacancy rates, and unemployment claims are also not consistent with a story where the unemployment rate is rising substantially.
Job and Hour Growth
The ending of the UAW and SAG strikes should boost employment by 40,000 to 50,000. This means that even if we have an underlying growth rate of 150,000, the November figure would come in close to 200,000. This is important to keep in mind in assessing the current strength of the labor market.
It will also be important to note what happens to aggregate hours. The index fell 0.3 percent in October, due to shorter workweeks. There are two stories here. The first is that the average workweek had gotten longer in 2022, as employers having difficulty getting workers instead worked their existing workforce more hours. Now that it is easier to find workers, we are likely seeing this practice less frequently.
The other issue is that employers may be shortening workweeks simply because they have less demand for labor. Insofar as that is the case, it would be cause for concern, since it could be a warning of more layoffs in the near future. This doesn’t seem likely at the moment, since the decline in hours is widespread across sectors and not particularly concentrated in cyclically sensitive industries.
Productivity Growth
The flip side of slow hours growth is that it implies rapid productivity growth. The productivity numbers for the last two quarters were ridiculously high. No one expects us to sustain productivity growth anywhere close to 4.0 percent, but if we get another month with weak hours growth, and still see a respectable pace of GDP growth this quarter, we will get a third consecutive quarter of strong productivity growth.
Wage Growth Accelerating
After going through a two-year period where the Fed and most analysts wanted to see slower wage growth, in order to avoid a wage-price spiral, it is certainly reasonable to expect some acceleration in wage growth.
Wage growth had slowed to an annual rate of just 3.2 percent over the three months ending in October. That is certainly not a pace that is going to lead to excessive inflation. The monthly data are erratic, so it is likely that this figure understates the current pace of wage growth, which is more likely around 3.5 percent. The average hourly wage has risen 4.1 percent over the last year, so the annualized rate over the last three months indicates a sharp slowing.
Healthcare and Government Likely to be Leading Sectors for Job Growth
The healthcare sector has accounted for an extraordinary share of new jobs in recent months. Its average gain over the last five months has been 63,000 jobs, more than double its pre-pandemic pace of 24,800 a month. Still, given the massive job loss in the pandemic, the sector is still more than 400k jobs below where it would be if the pre-pandemic trend had continued.
State and local governments are also continuing a process of regaining lost jobs. Employment in the two sectors is down by 36k (0.7 percent) and 39k (0.3 percent), respectively, from pre-pandemic levels.
Women’s Share of Employment
Women’s share of payroll employment was slightly over 50.0 percent before the pandemic. It fell sharply in the pandemic, as sectors that disproportionately employed women lost the most jobs.
The share has been edging back in recent months, with big job gains in health care and government, and now stands at 49.86 percent. It should get close to the 50.0 percent mark in November, as we should again see strong job growth in these sectors.
Share of Unemployment Due to Voluntary Quits Should Edge Higher
The share of unemployment due to voluntary quits fell back to 12.6 percent in October. It had hit a 3-year high of 15.8 percent in September of last year, but has gradually fallen back since then. The October figure is comparable to what we saw just before the pandemic and still consistent with a strong labor market, but it is reasonable to expect some random volatility could push it higher in November.
Overall Picture: Solid, Stable Labor Market
The October jobs report was very strong in almost every respect. It showed the labor market expanding at a sustainable pace. In contrast to prior reports, there was probably more reason for concerns about weakness than excessive strength.
The same story carries over with this report. It would be good to see some acceleration in wage growth, some reduction in the unemployment rate, and a broadening mix of industries adding jobs (healthcare and government accounted for more than 70 percent of October job growth). Most economic data still looks very good, but there is definitely some reason for concern about the economy weakening more than is necessary to bring inflation down to a sustainable pace.
