Crucial US Jobs Report Comes Up Goldilocks

The US economy added 531,000 jobs in October, the government said Friday.

It was the first upside surprise in three months, a welcome development at a time when markets and economists remain concerned about persistent labor scarcity and what it entails for the recovery.

Consensus expected 450,000 from the headline (figure below). The range, from nearly 80 economists surveyed, was 250,000 to 700,000.

Notably, revisions added 117,000 to August’s headline print and 118,000 to September. Those reports now appear far less disappointing.

Private payrolls rose 604,000, easily topping the 420,000 estimate. This time around, ADP wasn’t a red herring.

The BLS described hiring as “widespread” in October. Manufacturing added 60,000 jobs, double estimates. Transportation and warehousing increased by 54,000, and is now 149,000 above pre-pandemic levels. Professional and business services chipped in 100,000 jobs. 41,000 of those were in temp services.

Leisure and hospitality hiring increased by 164,000 last month, bringing the total for 2021 to 2.4 million. Restaurants and bars accounted for 119,000 positions. Still, employment in the sector, among the hardest hit by the pandemic, remained depressed.

The shortfall to pre-pandemic levels of employment in leisure and hospitality stood at 1.4 million, more than 8% below February 2020 (figure above).

The participation rate, a key concern for policymakers, was unchanged at 61.6%, while average hourly earnings were inline with estimates, rising 0.4% MoM and 4.9% YoY. The unemployment rate dropped to 4.6%, a tick lower than consensus.

“There’s still a sense of mild disappointment,” ING’s James Knightley remarked. “Labor supply simply isn’t returning and for companies desperate to hire, this is a problem,” he added. “Pay will have to be bid higher, with those costs increases likely passed on to consumers.”

The latest update on the labor market comes at a particularly critical juncture. The White House’s economic plan remained mired in intraparty intransigence a year on from the election. Hope for transformational change has faded and with it, Americans’ faith in government’s management of the economy.

Inflation is running the highest in decades. Maybe it’s “transitory” maybe it isn’t. Uncertainty around the path of prices has never been higher outside of recession according to the University of Michigan’s consumer survey (figure below).

Jerome Powell this week promised high inflation won’t “become a permanent feature of life” in America.

“The relevance of today’s update on the jobs market isn’t derived from its immediate impact on monetary policy expectations; after all, the Fed’s taper train has officially left the station,” BMO’s Ian Lyngen and Ben Jeffery said Friday. “Instead, with the impact of the Delta variant now receding in terms of the influence on hiring decisions and the direction of the real economy, investors will receive a glance at how the next phase of the recovery is translating to the employment landscape,” they added, noting that “enhanced unemployment benefits have all effectively expired and sidelined workers with sufficient savings have been reluctant to reengage in the jobs market as evidenced by the depressed <55 year-old labor force participation figures.”

Although the lack of progress on the participation rate could be construed as a disappointment, taken as a whole (and taken at face value), October’s jobs report will likely be viewed through the Goldilocks lens. The revisions were strong, markets have arguably priced in the prospect of a wage-price spiral to the extent possible given the available data (e.g., Q3 ECI) and there was nothing in Friday’s numbers that should materially alter the Fed’s “patience” narrative vis-à-vis liftoff timing.

A long week of monetary policy drama upset rates traders, but generally speaking, markets were poised to embrace even a decent NFP print. October’s report was better than decent.