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First Cut: October payroll data bests expectations with a solid increase on top of big upward revision to prior two months

Nonfarm payrolls rose 128,000 in October, besting market expectations. The gain was further improved by a net upward revision of 95,000 to the prior two months. The looked-for decline in manufacturing was smaller than anticipated at down 36,000, showing that the factory sector added jobs even with the loss of 46,000 workers during the UAW strike at GM. Goods-producers had a decline of 26,000 overall with up 10,000 for construction. Service-providers added 157,000 new workers with gains spread out across industries.  There were good gains for business and professional services of 22,000 even as temporary employment was down 8,100. Education and health services added 39,000. Financial activities rose 16,000. Long-suffering retail added 6,100 jobs and transportation and warehousing was up 9,000, both probably in the first wave of seasonal hiring for the holiday shopping season. Government hiring declined a small 3,000.

The average for third quarter monthly job gains was 188,000, up from 152,000 in the second quarter and outpacing the average in the first quarter of 174,000. The six-month moving average is at 156,000 for October. Taking into account the drag from the UAW strike, the underlying trend for payroll growth remains surprisingly good at this late stage of the expansion.

While average hourly earnings were up only 0.2% month-over-month, the up 3.0% year-over-year suggests that the underlying pace of modest increases is ongoing. The average workweek was unchanged at 34.4 hours.

The one-tenth uptick in the unemployment rate to 3.6% is more the nature of a correction after the surprise decline to 3.5% in the prior month and leaves the rate near 50-year lows. The unrounded rate was below the 3.6% at 3.562% in October from 3.517% in September. The U-6 rate also rose one-tenth to 7.0% but is still consistent with little slack in the current labor market. The participation rate edged up to 63.3% after 63.2% in September and the employment-to-population ratio was unchanged at 61.0%.

The numbers justify the FOMC’s assessment of the strength in the labor market with little slack. Even with the risks to growth and weakness in manufacturing, the economy continues to add jobs at a healthy rate able to absorb new workers and bring in those on the margins. Wage gains are modest, but ongoing. These are not the numbers of an economy slipping into recession, just downshifting to slower growth.

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