November 1, 2019

Private employment rose 131 thousand in October, but that excludes 42 thousand G.M. workers who were on strike during the survey week.  In addition, employment for August was revised upward by 41 thousand from an increase of 122 thousand to a revised increased of 163 thousand.  September was similarly revised upward by 53 thousand from an increase of 114 thousand to a revised increase of 167 thousand.  As a result of all these changes the  3-month moving average of private sector employment  is now 154 thousand.  To us, the pace of private sector hiring has slowed from 215 thousand per month last year, to about 155.  About 16 thousand of the slowdown in employment is attributable to the manufacturing sector which is legitimately weak.  The remaining 44 thousand of the smaller employment gains is attributable to the economy being at full employment.  There are simply not enough adequately trained workers available to hire.  Labor force growth rose about 125 thousand in the past year.  With employment gains continuing to exceed growth in the labor force, the unemployment rate should continue to decline slowly.

Amongst the various employment categories construction employment rose 10 thousand in October after having climbed 11 thousand in September.  The trend increase in construction employment appears to be about 12 thousand per month.  Builders would like to hire more workers but skilled workers are in short supply.

Manufacturing employment dropped by 36 thousand in October but that does not include 42 thousand G.M. workers that were on strike in that month.  So, in the absence of the strike factory would have risen by 6 thousand.    Factory employment is now rising by about 5 thousand per month.  It is struggling as the tariffs take a toll on growth on the goods sector.

Elsewhere, health care  climbed by 15 thousand.  Social assistance added another 20 thousand jobs in October.  Education gained 5 thousand.  Professional and business services increased 22 thousand in October.   Transportation and warehousing gained 10 thousand jobs.  Employment in leisure and hospitality establishments surged by 61 thousand of which 47 thousand was in food services.  Financial services gained 16 thousand workers.  Retail jobs rose 6 thousand.   In the public sector, government jobs declined 3 thousand.

In any given month employers can boost output by either additional hiring or by lengthening the number of  hours that their employees work.  The nonfarm workweek was unchanged in October at 34.4 hours.  It has been bouncing around between 34.3 and 34.5 hours for the past year.  The still  elevated level of the workweek  in most industries implies that employers are in need of workers and will continue to hire at a meaningful pace in the months ahead.

The increases in  employment and hours worked are reflected in the aggregate hours index which rose 0.1% in October after having risen 0.1% in September and 0.5% in August.  This index climbed by 1.0% in the third quarter.  Given that GDP growth in Q3 was 1.9% it is likely that productivity rose 0.9% in that quarter.

There is no doubt that the consumer sector of the economy is expanding at roughly a 2.5% pace.   The stock market is at a record level. Consumer confidence remains at a relatively high level consistent with a roughly 2.5% pace of consumer spending.

The sectors of the economy that remains under pressure are the various production industries.  They are largely unchanged.  As noted earlier, factory employment is barely increasing.  Construction employment has been rising slowly but steadily.  Mining employment is essentially unchanged.  The service sector, however, is booming.

Looking ahead, steady consumer spending and continued rapid growth rate in investment should cause  GDP to grow 2.4% both this year and  in 2020.

Stephen Slifer