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Weekly Economic Commentary

 
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The October employment report paints a favorable picture of the labor market.

November 2, 2012

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  • The October employment report paints a favorable picture of the labor market.

We are still in the Halloween mood, after greeting the many knocks on our door two days ago. Along those lines, the October employment report included mostly treats.

The numbers from both employment surveys are consistent this time around, as compared with the September numbers which seemed incongruous.  The October establishment survey numbers were positive on many fronts.  First, payrolls rose 171,000 and upward revisions for August and September estimates resulted in 84,000 more jobs.  Secondly, the diffusion index (which gauges the breadth of improvement across industries) of private sector payrolls rose to 60.7% in October, the best reading since May.  Third, temporary hiring, which is a precursor to long term employment, rose 13,600 following two consecutive monthly declines.  Fourth, the three-month moving average of payroll gains stands at 171,000, a far cry from the low of 45,000 seen in June.

Weekly Economic Commentary 11/02/12 Chart 1
 
The only potential trick in the payroll report was the news that hourly earnings posted a tepid 1.6% year-to-year increase in October.  The upside of this mild gain is that inflation is contained and pressure on profit margins is a non-issue. 

Employment in the household survey moved up (+410,000), but was exceeded by the expansion of the labor force (+578,000).  This created the slight retracement in the unemployment rate, to 7.9%.  The good news is that the participation ratio rose to 63.8%, erasing the decline recorded in the past three months.  Also, part-time employment, which gave a lift to the September employment report, declined in October and actually changed the patina around employment gains for the better. 

Weekly Economic Commentary 11/02/12 Chart 2

The broad measure of unemployment (which includes traditional unemployment as well as people who want to be working full time but can only find part-time work, and people who want to work but are no longer looking because they are discouraged) edged down to 14.6% in October.  It is still at an elevated level, but lower than the 15.1% mark of January 2012.

While improving, the labor market is not yet close to satisfying the Fed’s wish for convincing evidence to stop the latest quantitative easing program.  Boston Fed President Rosengren chimed in this week with the view that unemployment had to fall below 7.25% before an end to QE III should be contemplated.  Our current view is that the Fed will augment the existing quantitative easing program to include purchases of Treasury securities when it meets next month, because the journey is not complete yet.

The last two months of employment reports have raised expectations of good tidings for the holidays.  We hope that Congress does not end up being a Grinch over the next two months.

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The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.
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