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US Creates 261,000 Jobs, Wages Falter

Posted by Joseph Trevisani on Nov 3, 2017 12:14:52 PM

The U.S. economy added the most new workers in a year, reversing September's hurricane slowdown and dropping the unemployment rate to the lowest since 2000, even as wages shed all of their gains of the past 18 months. 

American employers reported 261,000 hires in October and revisions to the prior two months boosted payrolls by 90,000 including turning September's initial 33,000 loss into an 18,000 gain, according to Friday's Employment Situation Report from the Labor Department.  Economists had forecast 310,000 new employees. The unemployment rate fell to 4.1 percent from 4.2 percent and the labor force participation rate skidded to 62.7 percent from 63.1 percent bringing it back to its lowest level this year. 

A broader measure of joblessness the so called underemployment or U-6 rate which incorporates workers who have sought employment in the past year and those working part time  because they cannot find full-time work,  fell sharply to 7.9 percent form 8.4 percent, reaching its lowest point since July 2001.  One year ago the rate was 9.5 percent.

Average hourly earnings were flat after rising 0.5 percent in September.  The biggest miss and the biggest disappointment were annual average earnings which fell half a percent to 2.4 percent missing the 2.7 percent prediction and returning wage growth to its lowest point in the past two years. The average workweek was unchanged at 34.4 hours.

The decline in wage increases despite the robust job market has puzzled labor economists much as the failure of inflation to accelerate has confounded the Federal Reserve. The likely answer, though undocumented by this traditional measure of wages, lies in the profound changes wrought in the U.S. and global economy by the advent of the internet. In many fields and professions work is now global.

If for example Chases' customer service operations can be as easily based in India or the Philippines as in the United States, then that particular job market and its concomitant wages are also global. This serves to attenuate the link between the strong labor market in the U.S. and American wages.  The limiting pressure on compensation in hundreds of industries and on the U.S. economy in general stems from its place in this new worldwide labor market. 

October's report is the next to last before the Federal Reserve is expected to give the Fed Funds rate its third quarter point hike this year at the December 12-13th meeting.

The central bank has been concerned that inflation over the last five years has consistently been weaker than anticipated, The latest reading on core PCE price changes, the bank's preferred metric, was steady at 1.3 percent in October, equal to the lowest rate in the last six and a half years and down almost one-third from 1.9 percent in January.  Inflation has not been at the Fed's 2 percent target since April 2012. 

However, with the economy growing strongly, labor operating at or close to full capacity and equity averages at all-time records, the lack of inflation is unlikely to dissuade the FOMC from its stated course. 

Joseph Trevisani

Chief Market Strategist

WorldWideMarkets Online Trading

Charts: Thomson/Reuters, WorldWideMarkets Alpha Trader

Non-Farm Payrolls

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Unemployment Rate

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Annual Average Hourly Earnings

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Core PCE Price Index

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