The monthly employment report for October was reported this past week, and it was the best reading thus far in 2015. Interestingly my column last week discussed how the growth rate of the economy had slowed during the third quarter, and now we have a strong report for the start of the fourth quarter.
The number of net new jobs created in October was 271,000. This compares to an average increase of only 145,000 jobs for the months of August and September, which explained some of the relative weakness of the economy during the third quarter. For all of 2015 employment growth has averaged an increase of 206,000 per month.
Employment growth was strong across a number of categories. These included Business and Professional Services, Health Care, Retail, Restaurants, and Construction. The only weak category was Mining, which also includes Oil and Gas, which showed a decline of 5,000 jobs. This category has lost just over 100,00 jobs since its peak in December of last year, due largely to the decline in oil prices.
Besides the impressive job growth numbers the national unemployment rate declined to 5.0% in October versus 5.1% in September. The unemployment rate is still higher than the national average in Los Angeles County and California, though it has dropped significantly over the past few years.
In addition wage growth showed a significant improvement for the month of October. Until this past month year over year wage growth had been hovering right around 2%. However, in October annual wage growth increased to 2.5%, which is the best increase seen in a number of years.
With the unemployment rate at a relatively low level future wage gains should on average be better than they have been in recent years. Of course some people will do better than others, and a lot depends on whether the industry someone is working in is subject to foreign competition.
As I have cautioned previously, this employment data is not perfectly accurate, since it based on a survey, and is subject to revision. You really have to see reports for several months to accurately determine if a change in trend is taking place.
At a minimum, the report was strong enough to indicate that the economy has improved at least somewhat from its sluggish pace during the third quarter.
This report has added significance in that it increases the odds that the Federal Reserve will start to increase interest rates at its meeting in December. There will be one more employment report before the next Fed meeting, so it is still not a foregone conclusion that rates will be raised at the December meeting.
The strong employment report had a significant impact on currency markets, as the dollar strengthened. While for most people what goes on in currency market is probably not that significant, it does impact commodity prices. When the dollar is stronger commodity prices tend to fall, and the most significant commodity price for most consumers is oil.
Currency moves are not the only thing that impacts gasoline prices. Certainly in California refinery issues can play a major role in prices at the pump. However, assuming there are no major supply disruptions in the oil market, gasoline prices should remain relatively low for the time being.
The impact of a stronger labor market is somewhat mixed for financial markets. To the extent that interest rates rise, it is a negative for the bond market. For the stock market a stronger labor market implies more wage gains, or higher costs for businesses.
However, stronger employment would increase consumer demand resulting in greater revenue for companies.
Normally I don’t give too much weight to one month’s employment report, since these numbers can jump around quite a bit. However, with the Fed seriously considering a rate increase after keeping short-term rates near zero for seven years this report had more significance. For those who are working the most significant thing to note is that the likelihood of getting a raise is better than it has been.