Jobs: Expect Modest Growth in October
The October employment report, scheduled for release Nov. 2, should show a solid, though not spectacular, number of jobs added to the U.S. economy during the month. Action Economics expects job growth to be held back by another decline in goods-based industries and restraint from credit market turmoil. But labor market conditions should still be tight overall as most industries continue to churn out job gains.
We expect nonfarm payrolls to post a 100,000 October gain, vs. the 110,000 increase reported for September. The unemployment rate is expected to hold at 4.7%, while the workweek holds at 33.8 hours, and hourly earnings increase by a solid 0.3% from the preceding month.
Here are some of the key indicators that factored into our forecast:
The October ADP Employment survey revealed a 106,000 gain that translates to a 146,000 increase in nonfarm payrolls, if you assume a combined 40,000 contribution from government job growth and a 21,000 downward bias in the ADP figures relative to private payrolls. Our October payroll estimate was left unrevised at 100,000, though the ADP report obviously suggests upside risk.
The industry breakdown in the ADP report shows an expected 28,000 jobs drop for October goods employment with a 14,000 drop for factories, but a stronger than expected 134,000 service job gain.
Other Labor Market Indicators
Looking at other labor-market indicators, the rise in weekly jobless claims in October has resulted in increased concerns about the labor market, although recent levels are still well within the historically lean band seen over the last three years. Initial claims are tracking a month-average for October of 327,000, compared to month-average figures of 313,000 for September, 324,000 for August, 307,000 for July, 319,000 for June, 306,000 for May, and 327,000 for April.
Initial claims reached a 339,000 level during the Bureau of Labor Statistics' survey week for October—during which the data for the jobs report is compiled—compared with survey-week readings of 313,000 in September, 325,000 in August, 303,000 in July, 326,000 in June, 296,000 in May, and 341,000 in April.
The University of Michigan's consumer sentiment survey and the Conference Board's consumer confidence survey both moderated further in October, with the Michigan survey falling to 80.9 from 83.4 and the Conference Board survey dropping to 95.6 from 99.5. The Conference Board survey also revealed a sharp deterioration in the implied "job strength" index—the difference between "jobs plentiful" and "hard to get." This component has dropped to +1.5 from +3.6 in September, +7.8 in August, and +11.3 in July. This series currently sits at the weakest reading since November, 2005, and has revealed a three-month deterioration that has only previously been seen in recessions.
Manufacturing: Still Weak
The employment components from the various factory sentiment surveys that have so far been released for October have remained surprisingly firm. The Empire State employees index rose to 20.5 from 18.2, while the workweek jumped to 23.3 from 9.6. The Philly Fed survey's employees index rose to 12.6 from 7.5, while the workweek moderated to 5.1 from 11.9. A notable exception: The employment index in the Chicago PMI fell to 49.5 vs. 52.0 in the prior month.
In total, employment growth in manufacturing, construction, and the related temp industry are expected to remain weak. Recent turmoil in the credit markets will also likely lead to job attrition in the financial industry through yearend. But, we continue to expect weakness to be contained to these industries, with the rest of the report still implying limited fallout to the rest of the economy.