United States: Strong payroll gains in October buttress wages, further aided by low-base effect
November 2, 2018
The October employment report showed the U.S. economy adding jobs at a strong pace in the month. Non-farm payrolls increased by 250,000 in October, vastly exceeding market analysts’ expectations of 190,000 as well as the average monthly payroll growth in 2018. October represents the 96th consecutive month of job creation, the longest streak on record in the U.S. economy.
Looking at sectoral payroll data, it appears that job growth in October was broad-based and notably robust in key sectors. In the industrial sector, payroll gains were strongest in manufacturing, even exceeding expectations, and in construction. In the service sector, payrolls rebounded in retail trade, information, and government services after contracting in September. Job growth in professional and business services moderated somewhat in October, but payroll gains were stronger for education and health services, and surged in the leisure and hospitality sector after a flat reading in September.
Despite strong job growth, the unemployment rate was stable at September’s 3.7% in October, a near 50-year low. This was due to an increase in the labor force participation rate in October, up two tenths to 62.9%. Regarding earnings, year-on-year data indicates strong price pressures, up from 2.8% in September to 3.1% in October and beating expectations of 3.0%. However, this is partly due to a low-base effect from October 2017 data, as the month-on-month gains were much weaker at only 0.2%, down from 0.3% in September. Overall, the continued strength of payroll gains combined with slowly building wage pressures in recent months support the scenario of a fourth rate hike by the Fed at its December meeting, and a likely steady pace of rate hikes in coming quarters.
United States Unemployment Rate Forecast
FocusEconomics Consensus Forecast panelists expect the unemployment rate to average 3.6% in 2019, which is unchanged from last month’s forecast.. For 2020, the panel sees the unemployment rate averaging 3.8%.
Author: Joffrey Simonet, Economist