The Independent Market Observer

The October Employment Report: More Good News

Posted by Brad McMillan, CFA, CAIA, MAI

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This entry was posted on Nov 10, 2014 1:27:33 PM

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october employment reportThe October employment report released Friday offered another round of good news for workers and the economy as a whole.

For a couple years now, I’ve been emphasizing the positive direction of employment trends and noting that progress is accelerating, and it’s great to see the data showing that traction.

What the latest numbers mean

Total job growth. For the past quarter (Q3), job growth over the past year was 2,604,000, up for the third quarter in a row. On an absolute basis, this is the second-best quarter since 2000, trailing only the first quarter of 2006. Think about that: we’ve created more jobs over the past year than at any time except for the peak of two booms. This is a good number.

Monthly job growth. Last month was the ninth in a row of 200,000-plus job growth. The last time that happened was in 1994, although we came quite close during the late 1990s. This is important for two reasons: the jobs themselves and the consistency of the gains. Unlike the gains of the mid-2000s, these are widespread, not concentrated in bubble areas (like housing was then).

Broad-based job growth. More than 60 percent of sectors are showing job growth, and the percentage is rising. As I’ve written before, job growth (in amount and distribution) is very similar to that of the mid-2000s, with high-paying jobs growing along with lower-paying jobs.

Even stronger background data. While the current month’s data is the big news, the back months are worth a look.

  • August’s disappointing job number of 142,000, which caused so much angst at the time, has been revised up to 203,000 as more data comes in.
  • Since June, every month has been revised up for an average of 24,000 extra jobs.
  • Similarly, while the business survey jobs number makes the headlines, the household survey has been even stronger in many months—showing a 683,000 spike in jobs for October, for example, compared with the establishment survey of 214,000.

Strong big-picture numbers. Both the unemployment and underemployment figures continue to drop, returning to the levels of 2003 and 2008, respectively. The participation rate actually ticked up a bit, even as the unemployment rate improved (as did the employment to population rate, which moved up to a five-year high), so this improvement isn’t dependent on people moving out of the workforce.

What about wage growth?

Any way you look at employment, the news is good. The one missing piece is wage growth. But even here, the news is better than it seems.

The wage growth number is a fairly new construct, dating only to 2007. Older, more comprehensive data series are showing wage growth that is faster and accelerating. In all likelihood, it’s just a matter of time until the wage growth number starts to move.

Overall, this was a very positive jobs report, and one that supports an accelerating recovery. Despite occasional head fakes, the economy is strengthening and should continue to do so for at least the next several months.

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