HFF Analysis of the October 2017 BLS Employment Report

Friday, November 3, 2017

HFF is pleased to report on the latest employment expansion statistics from October 2017. Our research team analyzes trends and data to give readers a better view into the current state of the economy and how employment is being affected.

Employment Expansion

The U.S. added 261,000 jobs in October, and September figures were revised upwards to a gain of 18,000 jobs after having previously estimated a decline by 33,000. Payroll creation has averaged 197,000 since October 2010, marking the 85th month of consecutive growth. The period of monthly gains is almost three years longer than the last longest streak, which was from 1986 to 1990.

The September jobs picture was heavily distorted by Hurricane Harvey and Hurricane Irma and rebounded in October. The storms’ effects are clearest in the leisure and hospitality sector, which is highly weather dependent. The industry saw employment fall by 102,000 jobs in September then gained them all back and more in October.

The Unemployment Rate also showed improvement, dropping to 4.1 percent in October, the lowest level since December 2000. Not only is the job market fundamentally healthy, the broader recovery seems to be gaining strength as well. Last week, the government reported that GDP rose at three percent in the third quarter, the second straight quarter of solid growth. The strong economic data increased the probability that the Fed will decide to a rate hike at their December meeting.

Average Monthly Payroll Creation Slowing

The current expansion cycle is similar to 1991 to 2000 and greater than the 2004 to 2007 expansionary period, but only after a significantly delayed recapture of the nation’s previous employment peak.

Attractive Job Growth Cooling

The U.S. created 2.16 million jobs in 2016, the smallest gain for a calendar year since 2011. The last six years’ job growth is on par with the expansionary period from 1992 to 1995.

In 2016, the U.S. created 2.16 million jobs, but nearly 32 percent of private-sector job gains came from construction, manufacturing, retailers, hotels, restaurants and temporary help agencies, all typically low-paying sectors. Professional Business Services, the industry sector most closely aligned with office using employment, experienced expansion of 536,000 jobs in the year ending October 2017.

Fortunately, Temporary Staffing only accounted for 122,000 (approximately 23 percent) of these positions. Temporary Staffing is slowing, however, implying hesitance in hiring the lowest-cost employees companies can find in tentative expansions. Education and Health Services, which has performed well throughout the downturn being a recession-resistant industry, expanded by 464,000 jobs in the year ending October 2017. Mining and Logging continues to undermine headline growth but continued to grow positive this month with approximately 58,000 jobs being added in the year ending October 2017.

Big employment gains were expected for the sectors most directly impacted by the hurricanes, which include Leisure and Hospitality, Construction and Mining. Leisure and Hospitality saw a notable rebound in October, but Construction and Mining saw job trends about in-line with September.

Unemployment Rate

The Underemployment Rate augments the Unemployment Rate to include anyone marginally attached to the Labor Force that is either not employed or employed only part time. Fortunately, the Underemployment Rate has descending from a recent high of just over 17 percent. However, the spread between the two rates is near an all-time high and shows no sign of rapid compression. The Unemployment Rate dropped down to 4.1 percent in October from 4.2 percent the prior month, the lowest level since December 2000. The Underemployment Rate came in at 7.9 percent in October, a 40 basis point drop from the prior month, signifying the lowest Underemployment Rate since December 2006.

Wage Growth

As the labor force approaches “full employment,” much attention has been cast to wage growth. The past three recessions were preceded by a period of FOMC tightening. Average hourly earnings growth exceeded four percent in each of these periods as overall economic activity became reflected in strong wage growth.

With the current year-over-year percent wage growth registering approximately 2.4 percemt, one could argue overall economic activity has not yet reached levels that precede recessionary periods (often accompanied if not triggered by FOMC tightening to counter inflationary forces).

Sources: HFF Research, Bureau of Labor Statistics, Department of Labor, Bloomberg

Prepared by Morgan Allen, HFF Research Analyst, and Jimmy Hinton, HFF Managing Director of Research

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