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The Jobs Report Is Even Better Than It Looks

The U.S. job market had its best month of the year in October, posting impressive gains after two weak months that had sparked fears of a slowdown.

Employers added 271,000 jobs, the Bureau of Labor Statistics said Friday. That’s the most since December, and far more than most economists expected. The unemployment rate ticked down to 5 percent, from 5.1 percent in September, reaching its lowest point in seven and a half years. And if anything, the report was better than those figures suggest.

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It’s always dangerous to read too much into any one jobs report. The month-to-month numbers are volatile and subject to revision. The margins of error are big, around 100,000 jobs for the main payroll count. Big surprises in either direction are more likely to be outliers than indications of a new trend.

What makes Friday’s report significant, then, isn’t that it suggests the job market has found a new gear. Rather, the October numbers are significant because they suggest that the previous two disappointing jobs reports were themselves outliers. The “true” pace of U.S. job growth may not be as good as October’s numbers, but it’s probably better than August’s or September’s. We won’t know for sure for several months, but the most likely explanation for Friday’s numbers is that the U.S. job market is still where economists thought it was back before the August slowdown: in a state of steady, solid job growth.

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It wasn’t just the headline numbers that were strong. Friday’s report was solid from top to bottom. Below are a few of the most encouraging signs, with the caveat, once again, that this is just one report.

Wages rose: Average earnings rose by 9 cents an hour and were up 2.5 percent from a year earlier. That’s hardly a huge raise, but it’s significantly faster than inflation, which is running at less than 2 percent per year. And it continues a recent pattern of acceleration in wage growth in the second half of the year.

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Wage growth has been stubbornly slow for most of the recovery, and past periods of acceleration have quickly petered out. It’s too soon to know if the pickup will last this time. But if it does, it’s significant for two reasons. First, it’s good on its own terms — improvement in the economy doesn’t mean much if it isn’t putting more money in people’s pockets. But second, faster wage growth would suggest that employers are starting to have trouble finding workers and need to pay more to get them or keep them. That, in turn, could start to draw more people back into the job market.

The labor force grew: Speaking of people coming back into the job market, the labor force grew by more than 300,000 in October. Nearly 4.4 million people who weren’t in the labor force in September had jobs in October, and another 2.2 million people entered the labor force to start looking for work.

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Some context here is important: The labor force participation rate — the share of the adult population that’s either working or actively looking for work — didn’t budge in October and remains lower than it has been in more than three decades. The long decline in participation is due in part to the aging of the baby-boom generation, but even focusing just on so-called prime-age Americans, those between the ages of 25 and 54, there has been no rebound in the labor force.

Underemployment fell: The number of Americans working part time because they couldn’t find full-time jobs fell by 270,000 in October, following an even bigger drop in the previous month.

The large number of involuntary part-time workers has been a dark cloud over the job market for years. More people were working, but they weren’t finding steady, full-time jobs. That is now beginning to change. At 5.8 million, the number of involuntary part-timers remains high by historical standards, but that number is falling rapidly. Just 21 percent of part-timers want full-time jobs, the smallest share since 2008.

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Job growth was broader-based: Last month, I highlighted the worrying decline in the “diffusion index,” a measure of how many industries are adding jobs. This month, the index more than reversed that decline, jumping to 61.8, its highest level since February. (A reading of 50 indicates an equal split between growing and shrinking industries.) The government also revised up the previous month’s reading, and a separate index that focuses just on the manufacturing sector also posted a big jump. As a result, the job market appears less reliant on a handful of industries, suggesting a more stable recovery.

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Ben Casselman is a senior editor and the chief economics writer for FiveThirtyEight.

Filed under Economy 108 posts, Unemployment 67, Jobs Report 40, BLS 31, Wages 26, Bureau of Labor Statistics 22

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