October’s employment release exceeded expectations, as 171,000 nonfarm payrolls were created, though the unemployment rate edged higher to 7.9%. Revisions to prior months added another 84,000 to nonfarm payrolls. Job creation was broad, covering the service, manufacturing, and construction sectors, although the public sector continues to shed workers.
News on the labor market over the past few months has been largely positive. Initial jobless claims have remained relatively steady and low enough to signal continued expansion of payrolls. Wednesday’s ADP employment surprised to the upside with a reading of 158,000 new private sector jobs in October. Although we’ve noted before its inconsistent results as an indicator of the actual jobs report, the veracity of this month’s report was reinforced by the 184,000 new private sector jobs reported today.
Over the course of the last two months, the labor force increased by an estimated million workers, as the long-anticipated return of discouraged workers to the workforce may be starting. Despite the modest increase in the pace of job creation, income growth remains sobering. Growth in average weekly earnings has slowed to a crawl, creating a challenge for households and inhibiting better spending growth.
The Fed continues to target persistently high unemployment with its monetary easing efforts. Undoubtedly, the Fed’s efforts are helpful at the margins, but the degree to which its actions will spur better growth remains a topic of debate even among central bankers. As the election nears, the economy will remain a major focal point. There is enough diversity in the data for both parties to seize on certain points to attempt to make their respective cases. Objectively, job market conditions have improved considerably since the end of the recession in 2009, but the overall pace of job growth remains largely unsatisfying.
Looking beyond the election, the rapidly approaching fiscal cliff remains a huge cloud hanging over the outlook for the economy next year. The risk of Congress and the White House failing to strike a deal remains substantial, and corporate America has already started to assume a cautious stance in anticipation of spending cuts and tax hikes taking effect in January.
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