Private Employment Picks Up‏ In The US

The US economy added 171,000 new jobs in October and net revisions to prior months were positive. This leaves job growth clearly above the mid-summer lows.

Job gains in the cyclical part of the service sector improved the most and manufacturing employment growth turned positive after two months of decline.

Although the unemployment rate inched higher this was all due to an increase in labour force as household employment rose more than 400,000.

The Fed is likely to welcome the improvement in overall job growth but we are still far from a "substantial improvement" in the labour market.

Details
Overall job growth in October amounted to 171,000 and net revisions to prior months added 84,000. This was well above our estimate and market expectations. Looking at the details of the report, manufacturing added 13,000 jobs, better than in recent months and the three-month average is still at -5,000. Business services was the main positive adding 51,000 jobs in October but in general job growth improved in the cyclical part of the service sector. Government shed 13,000 jobs after a run of gains in the past three months.

Although the unemployment rate increased one notch to 7.9%, the guts of the household survey were positive. Household employment increased 410,000 in October after jumping 873,000 in September. The rise in the unemployment rate was all due to an even bigger increase in the labour force, which rose 578,000.

There are, however, still spots of weakness. First, wage growth remains subdued and with average hourly earnings flat on the month, the thee-month annualised growth rate in earnings is now at 0.4%, which leaves real wage growth deeply negative. Second, the average work week in the private sector has fluctuated around 33.7 since March and has not fully recovered to its pre-recession level yet; it actually declined to 33.6 in October. Finally, our payrolls income proxy suggests nominal disposable income growth should soon slow to below 2.0% AR, which implies that private consumption growth should stay positive but moderate.

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