U.S. Payrolls Add 531k Jobs in October

It’s About Damn Time

Question: When is inflation a good thing? Answer: When I can come up with a reason why (and I have).

For months, people have been whining about inflation. Food prices, fuel prices, copper, lumber, steel, PlayStation 5s, used cars, John Deere workers, etc. Many have been deriding the Federal Reserve with clever repartee like, “not so transitory, huh Jerome?” and of course, “transitory my ass!”

There’s a silver lining. Some inflation is of course welcome under any circumstance; the Federal Reserve’s target is 2% inflation, not zero. And of course deflation comes with its own sets of issues, and mild inflation serves as a defense against those.

Recently, though, key measures have suggested consumer price inflation running at more than 5% and construction materials price inflation at nearly 20% y/y. Too much of a decent thing.

But this recent bout of inflation may also be inducing more Americans to fill available jobs given that it has become meaningfully more challenging to pay bills, including for basics like diapers, home heat, food, and gasoline.

Inflationary pressures help explain this morning’s employment report (as does a ~60% decline in COVID-19 cases since the middle of September). According to the Bureau of Labor Statistics, the economy added 531,000 jobs in October, cruising past the consensus forecast of about 425,000 jobs. Just as importantly, disappointing gains in August and September were revised upward by a combined 235,000 jobs. Between revisions and October’s gains, payrolls expanded by a meaty 766,000 in today’s report. The unemployment rate fell to 4.6%, the labor force grew by 104,000 people, and if we maintain October’s pace of hiring, we’ll reach full recovery by June 2022.

Predictably, economywide inflation coupled with elevated demand for workers and greater difficulty retaining them also pushed wages higher, which in turn will translate into additional inflation going forward. Average hourly wages rose 0.4% for the month. What’s more, despite cause for some celebration, the labor force participation rate remained stuck at 61.6%, 1.7 percentage points under its February 2020 level.

Let’s fixate on the positive. You have an extra hour of weekend coming up. Use it wisely.

As always, you can read my in-depth thoughts regarding the construction industry’s labor market (spoiler alert: it was also good in October) at Associated Builders and Contractors.

Three (Somewhat) Key Takeaways

1. The leisure and hospitality segment added 164,000 jobs in October and industry employment is now just (just) 1.4 million jobs below its pre-pandemic level. The industry has added 1.9 million jobs over the past twelve months, but that came at considerable cost. Wages in that segment are up 12.7% since the start of the pandemic and 1% in October alone. Expect to pay more for hotel rooms and meals during the year ahead.

2. The unemployment rate for women rose from 4.5% in September to 4.7% in October, but it rose (at least partially) for the right reasons: 180,000 women joined the labor force, the largest monthly gain since March. Once again, women lead the way.

3. The share of workers who teleworked in October fell to 11.6%, down from 13.2% in September 2021 and 21.2% in October 2020. Expect longer commutes as normalcy steadily grinds towards us.

What to Watch

Biden’s impending packages. Will they pass? Will they accelerate economic growth and enhance productivity or will they primarily add to the national debt and stimulate more inflation?