Expect Some Good News on Jobs
By Michael Englund and Rick MacDonald
With the U.S. presidential election finally behind us, Wall Street can once again focus on economic fundamentals. And they will return in a big way on Nov. 5 with the release of the October employment report. We at Action Economics expect the report to show that the U.S. economy added 200,000 jobs on the month, vs. economists' median forecast of a rise of 180,000.
Our forecast is for the unemployment rate to hold steady at 5.4%, in line with the median forecast. We see upside potential for payroll growth relative to the 170,000 average monthly gain seen so far in 2004. One key reason: an offset in the numbers for the weak 96,000 gain in September, which may have been related to the string of hurricanes that struck Florida.
Despite the Bureau of Labor Statistics' statement in the September jobs report that hurricanes had little impact on nonfarm payrolls, the weakness in September payrolls and the mix of data for the key components of the report suggest that the storms easily accounted for a 50,000 shortfall. Indeed, sustained weakness in utility output over the summer months is clearly weather related, and the impact of sustained power outages in Florida certainly contributed to the pattern.
As for other components of the October report, we expect the average workweek at the same reading -- 33.8 hours -- as in September. We expect a 0.2% hourly earnings gain in October, in line with the average increase of the last 12 months.
We believe data from recent surveys by the Institute for Supply Management (ISM) support our forecast. Since the introduction of the ISM nonmanufacturing survey back in mid-1997, broader trends in the employment component have generally matched payrolls outside of the manufacturing sector. The jump in the employment index in the October nonmanufacturing report from the ISM -- to 55.8 from 54.6 -- provides support for our call that October payrolls will post a solid gain.
The employment index in the October ISM report on manufacturing tells a different story, however, as it moderated to 54.8 from 58.1. While such a figure has historically corresponded with solid factory employment growth, the weak translation so far on the year and the moderation on the month both suggest that any factory-job growth on the month will likely be modest.
Overall, the data should confirm that job growth remains healthy, despite concerns over the pace of job creation, and is consistent with forecasts of robust gross domestic product growth given the solid trajectory for productivity growth.
Englund is chief economist, and MacDonald global director of investment research and analysis, for Action Economics