Payroll employment rises by 150,000 in October; unemployment rate changes little at 3.9%
Total nonfarm payroll employment increased by 150,000 in October, below the average monthly gain of 258,000 over the prior 12 months, and the unemployment rate changed little at 3.9 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, government, and social assistance. Employment declined in manufacturing due to strike activity.
Employment in manufacturing decreased by 35,000 in October, reflecting a decline of 33,000 in motor vehicles and parts that was largely due to strike activity.
Employment in government increased by 51,000 in October and has returned to its pre-pandemic February 2020 level. Monthly job growth in government had averaged 50,000 in the prior 12 months. In October, employment continued to trend up in local government (+38,000).
The change in total nonfarm payroll employment for August was revised down by 62,000, from +227,000 to +165,000, and the change for September was revised down by 39,000, from +336,000 to +297,000. With these revisions, employment in August and September combined is 101,000 lower than previously reported.
Over the past three months, hiring has averaged 204K, continuing the downward trend over the past two years but still rising faster than the 2018-2019 average pace of 177K.
Outside of auto manufacturing, job growth narrowed in October. The diffusion index, which captures the net share of industries adding headcount, fell to its lowest level since the throes of the pandemic in April 2020. Excluding the strike-related drop in manufacturing employment, the goods industry continued to add jobs thanks to a 23K rise in construction employment. Services employment, however, slowed sharply after September’s unexpected gain. The 110K gain in private sector services could primarily be traced to a 77K increase in healthcare. In a sign that businesses may be cautious on holiday sales this year, retail employment was up a scant 1K last month, while transportation & warehousing employment fell 12K. (Wells Fargo)
Source: U.S. Department of Labor and Wells Fargo Economics
The average workweek for all employees on private nonfarm payrolls edged down by 0.1 hour to 34.3 hours in October.
In October, average hourly earnings for all employees on private nonfarm payrolls rose by 7 cents, or 0.2 percent, to $34.00. Over the past 12 months, average hourly earnings have increased by 4.1 percent.
In October, average hourly earnings of private-sector production and nonsupervisory employees rose by 10 cents, or 0.3 percent, to $29.19. [4.4% YoY]
Fed Extends Pause on Rate Hikes but Keeps Door Open to Moving Higher The central bank is sorting through the implications of unexpectedly strong growth and higher borrowing costs.
(…) “The committee is proceeding carefully,” Powell said during a press conference where he said nothing to shift the market’s expectation that officials won’t raise rates in December. (…)
At Fed officials’ September meeting, most projected one more rate increase this year, but some have spoken in recent weeks as though they aren’t eager to hike again unless hotter-than-expected economic data force their hand.
Powell echoed that sentiment on Wednesday by repeatedly highlighting how much inflation has fallen, rather than emphasizing the economy’s recent strength. (…)
Officials have been trying to balance two risks. They don’t want to overdo rate rises to avoid causing an unnecessarily severe downturn. They also don’t want to allow inflation to reaccelerate or to settle at levels well above their 2% target. “Those risks are closer to being in balance,” Powell said. (…)
Pressed over whether the Fed had raised rates to a level that would be sufficient to bring down inflation, he said, “We’re not confident that we haven’t, but we’re not confident that we have.” (…)
That inflation eased as growth strengthened this summer highlights how the economy has likely benefited from improving supply conditions, including fewer bottlenecks and shortages of goods, freight shipping and workers.
Powell said those supply-side improvements could allow inflation to continue to fall even if economic growth is solid, suggesting that stronger growth isn’t necessarily a problem for the Fed. “We feel like we’re on a path to make more progress, and it’s essential that we do,” he said. (…)
Importantly, on wages:
“In the labor market, what we’ve seen is a very positive rebalancing of supply and demand, partly through just much more supply coming online,” Powell said Wednesday. So even “with labor demand still clearly remaining very strong…you see wage increases coming down.”
October data was quite positive on wages with both total and service-providing wages rising 0.2% MoM. Last 3 months: both series +3.2% annualized.
Good news on employment (slowing) and wages (slowing) comes with a caveat: labor income is also slowing from 5.6% YoY in September to 5.0% in October, suggesting slower consumer expenditures in October after the strong September print (+5.9%).
On this next chart, there is no blue bar for October because aggregate payrolls were unchanged, zero, MoM, suggesting flat nominal spending last month.
Slower employment growth, slowing wages (black) and declining hours. Right before the holiday season…
- John Authers: Not Even Thinking About Thinking About Rate Cuts In 2020, Jerome Powell famously said he wasn’t giving a thought to hikes. Central banks are now coming full circle to the question of easing.
It’s more than three years since Jerome Powell gave us one of his best one-liners. “We’re not even thinking about thinking about raising rates,” he protested in June 2020. He kept to that line firmly for another a year, and didn’t hike rates until March 2022. Now more or less everyone, including Powell himself, accepts that the Fed should have done that earlier, and by extension started thinking about it earlier as well. (…)
We’re not talking about rate cuts, Powell averred earlier this week. On Thursday, Andrew Bailey of the Bank of England weighed in with more or less the same words, saying it was “much too early to be thinking about rate cuts.” And they were both following the example of the European Central Bank’s Christine Lagarde, who last week said in questioning: “When and at what level do you cut? This was not discussed at all, and the debate would be absolutely premature.” (…)
If the overnight index swaps market is right, then the first fully priced-in cut by the ECB will happen in April, to be followed by the Fed and the Bank of Canada in July, and the Swiss National Bank and BOE in September. None is expected to go any higher — and previously markets were braced for them to keep rates high for much longer. (…)
The receding belief in “higher for longer” has spurred the startling rallies for both stocks and bonds of the last few days. But how well based is it? Inertia is important. A move in either direction is a big signal, and central banks would rather not move if they don’t have to. For most of them, inflation is unambiguously their priority. So it would take real trouble, combined with reasonably calm inflation expectations, for a central bank to cut. (…)
For weeks now, rising yields have been seen as the driver of equities, with both moving in lockstep. That’s resulted in pain for the time-honored portfolio of 60% stocks and 40% bonds. More recently, a Bloomberg gauge of the 60/40 model had slumped roughly 8.4% since July until the recent rebound. (…)
Ian Harnett of Absolute Strategy Research in London draws attention to the way the unemployment rate is inversely correlated with equities’ performance relative to bonds. When it’s falling (much of the time), stocks beat bonds. When it rises, bonds win, often quite violently. Rising joblessness in the non-farm payroll data due Friday would be good news for bonds — but not necessarily for stocks:
So, if you think the jobs market really will ease, you should be buying bonds. But the critical number in the data the Bureau of Labor Statistics is about to release concerns the cost of employing people. Unit labor costs were revealed to have risen much slower than feared in data published earlier this week, but the total employment cost index remains high. Average hourly earnings, part of the unemployment report, have so far moved more with the ECI, as the chart from Joe Lavorgna of SMBC Nikko demonstrates. (…)
Apple’s Disappointing Outlook Spotlights Growing China Woes
Apple, which is trying to reverse several successive quarters of revenue decline, reported its lowest revenue from the greater China region since mid-2022. Its shares slid more than 3% after that number missed the average of five analysts’ projections by 11%. Chief Executive Officer Tim Cook assured Wall Street that iPhone demand remains strong in China, blaming Mac and iPad weakness instead. But he also predicted flat December-quarter revenue, suggesting Wall Street won’t see the growth rebound it’s banking on. (…)
Apple’s revenue in Greater China declined 2% [vs expectations of a 10% increase]— a steeper drop than the companywide figure. There are signs that trend may persist: Initial sales of the iPhone 15 in China were 6% lower than its predecessor in part because of incursions by Huawei, according to the consultancy GfK. (…)
Beijing has expanded a ban on Apple products to state-backed firms and government-backed agencies. Hon Hai Precision Industry Co. — which assembles the majority of Apple’s iPhones from its Chinese factories — is now under investigation over taxes and land use. (…)
In one potentially ominous sign, Qualcomm said that its smartphone chip business saw a 35% increase from Chinese manufacturers of Android phones, suggesting that customers in the region are opting for non-iPhones in larger numbers.
The area is Apple’s largest international market, accounting for about a fifth of sales. Still, Cook said he believes Apple actually gained smartphone market share in China during the quarter. (…)
- Warning Signs Grow Apple Is Losing China Consumers to Huawei Data from GfK and IDC show iPhone down as much as 6% in China
(…) Mobile industry tracker IDC estimates Apple’s shipments were down 4% in the third quarter, with both identifying Huawei Technologies Co.’s return to the mobile arena spotlight as a key event in the period. Huawei’s Mate 60 series recorded sales of close to 1.5 million in its launch month, more than doubling from a year ago, GfK said, despite facing supply constraints. (…)
Counterpoint Research and Jefferies analysts released preliminary sales figures for China earlier this month, indicating the slump for Apple could be as big as a double-digit percentage as the country’s economic challenges hit consumer demand. (…)
In the latest IDC report, local brands Honor Device Co. and Oppo took the top two spots in China in the past quarter. Honor, which was spun off as an independent business from Huawei in 2020, introduced several foldable models in recent weeks, focusing on the segment of the smartphone market that is still showing robust growth.
U.S. Housing Supply Ticked up 5% in October Extremely low inventory is still dragging on the market and remained 42% below prepandemic levels
Supply was down 2% in October compared to the same time a year ago, according to a report Thursday from Realtor.com. However, instead of supply decreasing in October compared to September—as it typically does—the inventory of homes for sale grew by 5.1%. (…)
- The US Housing Market Has Become an Impossible Mess Americans with cheap loans don’t want to sell. Those without homes can’t afford to buy. Will anything budge?
(…) The Federal Reserve bank’s aggressive tightening since last year has driven the interest rate on a 30-year mortgage close to 8%, the highest point in almost a quarter century, adding some $1,100 to the monthly payment on a $400,000 loan. That might be manageable if higher rates led to lower prices. But the impact on supply is even more drastic because of the so-called lock-in effect: Homeowners are unwilling to let go of cheap mortgages they got when rates were scraping bottom. This has resulted in the least affordable housing market since the 1980s, with sales approaching record lows. (…)
University of California at Berkeley economist John Quigley in the 1980s identified the lock-in effect, which he said was preventing Americans from selling their homes. Mortgage rates had spiked from 9% in 1978 to 18% in 1981, leaving millions of households with older mortgages paying what amounted to below-market rates. Buying a new home meant a more expensive loan, adding substantial costs—a powerful disincentive to moving. (…)
These days, most existing mortgages are below 4%, roughly half the cost of a new 30-year loan. The large spread is likely to reduce the rate at which homeowners move by more than a quarter over the next decade, according to estimates from Julia Fonseca of the University of Illinois and Lu Liu of the University of Pennsylvania.
The trend will mostly affect would-be buyers of their first homes, who will miss out on a key opportunity to use government-supported mortgages to build wealth. But economists point to other issues: The lock-in effect threatens to prevent younger owners from moving to larger homes and expanding their families while causing empty nesters to put off downsizing. And decreased mobility makes for a less efficient labor market, as workers will be less likely to move for new jobs if they don’t want to give up their old mortgages. (…)
New homes now account for a third of available inventory, versus the typical 10%, according to consulting firm Zonda. (…)
Only way out: substantially lower mortgage rates.