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Jobs Growing Slowly but Wages Rise in October

U.S. employers added only 161,000 nonfarm jobs in October, but the average hourly wage grew by 10 cents, according to the U.S. Department of Labor, Bureau of Labor Statistics, Employment Situation report issued Nov. 4 (Exhibit 1).

October marked the third month in a row of subpar job growth compared with the 2015 average of 229,000 new jobs per month.

exhibit 1Employers had added 191,000 jobs in September (revised up from 156,000) and 176,000 jobs in August (revised up from 167,000 jobs). Through the first 10 months of 2016, employment growth has averaged 181,000 per month.

We believe the declining pace of job growth is the natural result of the drop in the unemployment rate from about 10% to the current rate of 4.9% over the past few years.

exhibit 2At 4.9%, the economy is nearing full employment, which the Federal Reserve has defined as about 4.8% (Exhibit 2).

Job growth, which had been growing faster than the population, has been trending down toward the growth rate of the working-age population. 

As job growth slows, an important metric to watch is wage growth. Wages were up an average of 10 cents per hour to $25.92 in October, following an 8-cent increase in September.

exhibit 3That marks a 2.8% year-over-year increase in average hourly earnings.

Here are some of the other key trends noted in the report: 

  • The number of unemployed persons looking for jobs declined slightly from 7.9 million to 7.8 million for the month, but that was primarily a result of people leaving the workforce.
  • The number of long-term unemployed (those jobless for 27 weeks or more) remained at the same high level – approximately 2 million Americans – which accounts for 25.1% of the unemployed (Exhibit 3).exhibit 4
  • The labor force participation rate for those in their prime working years (age 25 to 54) experienced slight improvement. The rate inched up to 81.5% a month earlier, which was the highest level since 2012, but still 1.5 percentage points below the prerecession level (Exhibit 4).
  • The average workweek was unchanged at 34.4 hours, and remains in a range comparable to that preceding the last recession (Exhibit 5).
  • exhibit 5The number of job losers and persons who completed temporary jobs declined by 218,000 from the previous month to 3.7 million.
  • The percentage of people working part time who would prefer full-time work remained the same at 5.9% (Exhibit 6).
  • Initial jobless claims, reported weekly, remained at a very low level (Exhibit 7).

The continuing growth of jobs in the economy is one of the key considerations for the Federal Reserve in deciding whether to raise interest rates.exhibits 6 and 7

The Fed has already decided not to raise rates in November, but indicated that there was a possibility of a rate hike in December.

We believe a small rate hike could be beneficial to net savers without adversely affecting the economy or consumer spending.

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