With Friday’s revision to September’s figures, the economy has now added jobs for 85 consecutive months, a record.
“The bigger picture here is that the labor market’s fine,” said Brett Ryan, an economist at Deutsche Bank in New York.
Now that the storms have passed, the focus can return to the central question for the United States job market: With unemployment low, when will wage growth accelerate? Average hourly earnings have been rising at an annual rate of about 2.5 percent in recent months — faster than inflation but below the level most economists would expect with the unemployment rate below 4.5 percent. Friday’s report offered little encouragement on that front, as hourly wages fell slightly from September and the year-over-year rate of growth slowed.
“It’s certainly trending the right way, but it’s surely still unexciting — even unacceptable — wage growth at this point,” said Dan North, chief economist at Euler Hermes North America.
Friday’s numbers are preliminary and will be revised at least twice in coming months. They are also subject to large margins of error — so consider the numbers, especially the month-to-month changes, with caution.
The Storm Effect
The Bureau of Labor Statistics initially estimated that the United States lost 33,000 jobs in September, the first net decline in payrolls in seven years. (Those figures were revised Friday morning to show a gain of 18,000.) But those figures were heavily skewed by the hurricanes, which kept some 1.5 million workers off the job. Most economists expected a strong recovery in October, as displaced employees returned to work and as the rebuilding effort generated even more demand for labor.
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 — 106,000 jobs — in October.
As a result, it’s probably best not to pay too much attention to either September or October’s figures, at least not on their own. Rather, most economists recommend focusing on the broader trend. Before the hurricanes, employers were hiring at the pace of about 170,000 jobs per month this year. That’s down from an average of about 190,000 in 2016 and nearly 230,000 in 2015, but it still represents a solid pace of growth, and should be enough to keep pushing the unemployment rate down and drawing new people into the work force.
Waiting on Wages
Average earnings rose 12 cents an hour in September, according to the government’s preliminary estimate. That jump, one of the biggest one-month gains on record, may have been at least partly a result of the hurricanes — with many low-wage restaurant and hospitality workers pushed out of the work force, at least temporarily, the average wage was nudged higher. The average fell by 1 cent an hour in October, and return of those workers may have helped bring the figure down.
Even accounting for the hurricanes, however, Friday’s report was a disappointment. Many economists expected slower wage growth in October, but few expected an outright drop. And while the month-to-month figures are volatile, the annual rate of growth also slowed.
Over the longer run, wages have been rising faster than inflation, but slowly by historical standards. That wasn’t a surprise early in the recovery, when there were millions of unemployed workers clamoring for jobs — and giving employers little incentive to raise pay. But the unemployment rate hit 4.2 percent in September, lower than it ever got during the previous economic expansion. Standard economic models suggest that should lead to faster wage growth.
“We’ve been lamenting for a year about how we’ve had this great, really low unemployment rate and yet the wage growth is not coming up to what we’d expect historically at these levels,” said Catherine Barrera, chief economist at ZipRecruiter, an online job site.
There are reasons for optimism. Wage growth has been picking up in recent months, albeit gradually. The Employment Cost Index, a more sophisticated measure of compensation that considers benefits as well as cash pay, was up 2.5 percent in the third quarter from a year earlier, its fastest pace in two and a half years.
The Labor Force
The September report may have been disappointing when it came to job growth, but another key measure of labor market health was much more encouraging: The unemployment rate fell to 4.2 percent, the lowest it has been since 2001. Even better, the labor force grew, a sign that strong hiring and faster wage growth have been tempting people back into the job market.
The October report was more mixed. The unemployment rate fell further, to 4.1 percent. The labor force, however, fell by 765,000.
The labor force is fighting against a strong demographic headwind: the retirement of the baby boom generation. The participation rate — the share of adults who are either working or actively looking for work — is near multi-decade lows, largely because of the aging population. In recent months, however, the participation rate had begun to edge back up, as the strong job market drew idle workers off the sidelines.
Mr. Ryan said Friday’s report suggested that there simply aren’t many workers left to attract.
“With jobless claims at 45-year lows, there’s really not a lot left on the sidelines,” Mr. Ryan said. “We’re at full employment.”
A Construction Shortage?
The hurricanes created a demand for workers to rebuild homes, roads and other structures damaged by the storms. That led some economists to expect a surge in storm-related hiring. But Friday’s report showed little evidence of that — the construction sector added a modest 11,000 jobs in October, the same as September.
One possible reason for the misfire: a shortage of workers in the industry, something companies have long complained about. The issue is especially acute in skilled trades, where training requirements make it hard to fill jobs quickly.
“I’ve heard some anecdotal evidence that construction companies are having difficulty finding enough labor,” Ms. Barrera said. “Certainly the demand is there. The question is, is there enough supply of people working in construction?”
There isn’t much evidence in workers’ paychecks that points to a shortage, however. If companies are struggling to find workers, economists would expect them to be increasing wages to attract and retain employees. But pay for construction workers actually declined slightly in October.
The Retail Slump
Retailers cut 8,000 jobs in October, the eighth time in nine months that employment has declined in the sector. (Revisions did turn what was initially reported as a September job cut into a modest gain.)
Retailers are struggling despite a consumer economy that is humming as the holiday shopping season approaches. Retail sales posted a big gain in September, and consumer confidence hit a nearly 17-year high earlier this week. But brick-and-mortar retailers are struggling in the face of competition from Amazon and other online sellers.
“The issue is really the structure of the industry,” said James Sweeney, chief economist for Credit Suisse in New York. “The problem is certain business models are becoming obsolete as the world changes.”
The Economic Context
Not only is the job market fundamentally healthy, there’s no sign that the broader recovery is losing steam. If anything, it seems to be gaining strength.
Last week, the government reported that gross domestic product rose at a 3 percent annual rate in the third quarter, the second straight quarter of solid growth. Consumer spending, the dominant driver of economic growth in recent years, has stayed strong. But consumers are no longer alone in driving the economy forward. Stronger global growth has led to higher demand for American goods and services in recent months, aiding the manufacturing sector and boosting exports.
“It’s finally feeling like the economy is starting to fire on multiple cylinders rather than relying solely on consumers,” Mr. Ryan said.
The strong economic data is part of what will most likely give the Federal Reserve the confidence to raise interest rates at its December meeting. Even a weak jobs report, Mr. Ryan said, was unlikely to lead the Fed to hold off on a rate increase.
An earlier version of this article misstated the labor-force trend for October. The labor force fell by 765,000; it did not grow.