Popular Economics Weekly
Average hourly earnings are up 2.8 percent annually, a recovery high. Nonfarm payroll growth was up 161,000 with upward revisions adding a net total 44,000 to September (191,000) and August (156,000). The unemployment rate is down 1 tenth to 4.9 percent and, for some, is already signaling full employment for the labor market, said the Bureau of Labor Statistics.
We are reaching full employment levels, in other words, which will surely mean the Fed raises short term rates in December. Rising wages are two-thirds of product costs, which means the Fed Governors believe higher inflation has to be coming.
But where is it? The overall PCE price index is up just 1.2 percent annually. This is the strongest yearly showing since November 2014 and is 2 tenths closer to the Federal Reserve’s 2 percent target. Yet employment costs aren’t rising with the so-called Employment Cost index, the sum of benefits and salaries, no higher than 2.5 percent in a year.
The increase in hiring last month, along with stronger job gains in August and September than previously reported, shows the seven-year-old economic recovery still has plenty of life despite a slowdown in growth earlier in the year, says Marketwatch.
Q3 GDP growth rose to 2.9 percent, and fourth quarter growth looks to be strong, as well. Health care companies, white-collar professional outfits, and financial firms led the way in job creation, all in the service industries, while mining and manufacturing payroll employment declined.
Better news was that a broader measure of unemployment fell to 9.5% from 9.7%, touching the lowest level since May 2008. The so-called U6 rate includes part-timers who can’t find a good full-time position and discouraged jobseekers who’ve recently given up looking for work.
Also 19,000 new government jobs were added. Health care employment rose by 31,000 in October. Over the past 12 months, health care has added 415,000 jobs. Employment in professional and business services continued to trend up in October (+43,000) and has risen by 542,000 over the year. Over the month, a job gain occurred in computer systems design and related services (+8,000). Employment in management and technical consulting services continued to trend up (+5,000).
U.S. Manufacturing is also strong, according to the ISM’s Manufacturing Index. “The October PMI® registered 51.9 percent, an increase of 0.4 percentage point from the September reading of 51.5 percent, “ said Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee. . “The New Orders Index registered 52.1 percent, a decrease of 3 percentage points from the September reading of 55.1 percent. The Production Index registered 54.6 percent, 1.8 percentage points higher than the September reading of 52.8 percent. The Employment Index registered 52.9 percent, an increase of 3.2 percentage points from the September reading of 49.7 percent.”
So employment, production and deliveries were up, though new orders dropped slightly. This all has to mean the Fed will shortly (i.e., after the Presidential election) probably raise their short term rates another 0.25 percent, which means the Prime Rate of 3.50 percent that controls revolving credit rates for starters, is due to rise at least 0.25 percent.
Harlan Green © 2016
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