After two months of dismal job reports, the BLS finally redeemed itself when moments ago it reported that in October the US gained some 531K jobs, well above the 450K consensus exp and above the 500K whisper number. The gain in payrolls was also bigger than all but 10 of the 75 forecasts in Bloomberg’s survey.
As Bloomberg calculates, if payroll gains stay at the same pace as October’s, in eight months the total payroll figure would be back at its record high.... that’s also when the Fed would be finished zeroing-out QE. So, time for a rate hike in July?
Remarkably, the private payrolls print was a stellar 604K, with government jobs shrinking by 73K in October. Just as importantly, the Sept print was revised solidly higher, from 194K to 312K, as was August, up from 366K to 483K. With these revisions, employment in August and September combined is 235,000 higher than previously reported.
Also worth noting: gain in not seasonally adjusted payrolls last month was a whopping 1.56 million, which was more than the prior three months combined! As Bloomberg notes, "in terms of actual people actually heading to work, that’s a whole lot more than we had in summer."
In any case, payrolls are now 4.2 million lower than the peak reached before the pandemic, February 2020. Naturally, this is better than the near-5 million we had in September.
And there was some very good news for the US manufacturing sector which saw jobs jump by 60K in October, double the expected 30K.
We will have a more detailed breakdown later, but despite the solid headline print, leisure and hospitality hiring is still looking slower than before the delta wave... although it is picking up a bit, at +164,000 in October. August and September were also revised up a bit to +71,000 and +88,000, respectively.
Validating the solid headline print was the Household survey which showed that the number of employed Americans jumped by 359K from 153.68K to 154.039K, and with the number of unemployed dropping from 7.674M to 7.419M, the unemployment rate dropped from 4.8% to 4.6%, below the 4.7% exp.
The labor participation rate was unchanged at 61.6% as the labor force rose modestly by just over 100K. Commenting on the flat print, Ross Mayfield, an analyst at Baird, sees the LFP rate as a "weak spot" again - “Would love to start to see that move higher as Covid wanes to show expanding labor supply and help ease some of those pressure. But a really strong report overall.”
There was more good news, with average hourly earnings rising from 4.6% to 4.9% Y/Y, even if the monthly increase dipped modestly from 0.6% to 0.4%.
Digging a bit deeper, we find that wage growth is surging in leisure and hospitality, where it jumped 12.4% year-over-year, as retailers still can't find workers. But even in the rest of the labor market, wage growth of 5.9% is also basically the highest since the early 1980s.
Average weekly hours worked dipped slightly to 34.7 from 34.8. This measure had been elevated, as expected in a time when employers can’t find workers they ask existing ones to work longer. So the dip in October could suggest that there’s an ever-so-slight reduction in pressures.
Looking at the breakdown of job gains, growth was widespread in October, with notable job gains occurring in leisure and hospitality, in professional and business services, in manufacturing, and in transportation and warehousing. Employment in public education declined over the month.
- Employment in leisure and hospitality increased by 164,000 in October and has risen by 2.4 million thus far in 2021. Over the month, employment rose by 119,000 in food services and drinking places and by 23,000 in accommodation. Employment in leisure and hospitality is down by 1.4 million, or 8.2 percent, since February 2020.
- Professional and business services added 100,000 jobs in October, including a gain of 41,000 in temporary help services. Employment continued to rise in management and technical consulting services (+14,000), other professional and technical services (+9,000), scientific research and development services (+6,000), and legal services (+5,000). Employment in professional and business services is 215,000 below its level in February 2020.
- Employment in manufacturing increased by 60,000 in October, led by a gain in motor vehicles and parts (+28,000). Employment also rose in fabricated metal products (+6,000), chemicals (+6,000), and printing and related support activities (+4,000). Manufacturing employment is down by 270,000 since February 2020.
- Employment in transportation and warehousing increased by 54,000 in October and is 149,000 above its February 2020 level. In October, job gains occurred in warehousing and storage (+20,000), transit and ground passenger transportation (+16,000), air transportation (+9,000), and truck transportation (+8,000). Employment in couriers and messengers decreased by 5,000 in October, after increasing in the prior 3 months.
- Construction employment rose by 44,000 in October, following an increase of 30,000 in September. In October, employment increased in nonresidential specialty trade contractors (+19,000) and in heavy and civil engineering construction (+12,000). Construction employment is 150,000 below its February 2020 level.
- Health care added 37,000 jobs in October, with most of the gain occurring in home health care services (+16,000) and nursing care facilities (+12,000). Employment in health care is down by 460,000 since February 2020.
- In October, employment in retail trade rose by 35,000. Employment gains occurred in food and beverage stores (+16,000), general merchandise stores (+15,000), health and personal care stores (+8,000), and electronics and appliance stores (+6,000). These gains were partially offset by a job loss in building material and garden supply stores (-10,000). Retail trade employment is 140,000 lower than its level in February 2020.
- Employment in the other services industry increased by 33,000 in October, as personal and laundry services added 28,000 jobs. Employment in other services is 169,000 below its February 2020 level.
- Employment in financial activities rose by 21,000 in October and has returned to its February 2020 level. Over the month, job growth occurred in real estate and rental and leasing (+12,000) and in securities, commodity contracts, and investments (+11,000).
- Employment in wholesale trade increased by 14,000 in October, reflecting a gain in the durable goods component. Employment in wholesale trade is 158,000 lower than in February 2020.
- Mining employment continued to trend up in October (+5,000) but is down by 87,000 from a peak in January 2019.
The data will come as a relief to the battered White House, as it suggests the weaker August and September reports were indeed much affected by the delta variant, and not something more sinister. Commenting on the data, CFRA's Sam Stovall said that "This month’s numbers played catch-up to the ADP reports of the past two months, demonstrating that the September BLS results were an anomaly."
Not everyone was impressed however: Katherine Judge, an economist at CIBC Capital Markets, said that "while better than expected, this print still leaves the unemployment rate 1.1%-points above the lows the Fed is aiming to see in the next two years.”
Haris Khurshid, portfolio manager at Fate Capital Management, says the report was “relatively good” but he too had some reservations:
“I will add that there still is a record labor shortage, and this is feeding directly into the supply-chain issues we’re seeing. While everyone is basically forecasting a record holiday shopping season, I’m not concerned with the demand, but rather the delays in shipping. We’ll hopefully start seeing a consistent gradual improvement in the coming months within the labor market.”
Commenting on the market's kneejerk reaction, Bloomberg Intelligence chief US rates strategist writes that “the Treasury knee-jerk reaction to the payroll report was for the curve to bear flatten with the three- and five-year sectors underperforming. This market appears to be thinking the report is good enough for the Fed to continue hiking beyond what is priced." He adds that "the belly of the curve should continue to attract the most attention, as the market searches for a terminal rate, which we think will be under 2% this cycle and probably not reached until 2024.”
As for stocks, with futures trading at new all time highs, the meltup is poised to continue because as Baird’s Mayfield says, this report was “kind of Goldilocks" as it’s probably not a large enough beat to “really inspire the Fed to get much more hawkish,” given the weaker participation rate.
“Definitely a positive. Eases any lingering stagflation fears and shows signs that Covid headwinds are waning.”