October Jobs Report: The Good And Bad

There's (relatively) good news and (more of the same) bad news in today's employment report.

First the good news, such as it is. Private-sector job creation continues to chug along at a mediocre pace. Last month witnessed a net gain of 104,000 for private non-farm payrolls, the Labor Department reports. That's nothing to get excited about, but it's obviously better than a loss and so it offers yet another bit of statistical evidence for thinking that the economy isn't poised to slip into a new recession. There's also encouraging news in the latest batch of revisions to previous payroll reports. In particular, September's initial estimate of a 137,000 net rise in private payrolls has been substantially revised higher to 191,000. Even August's originally dismal rise has been revised higher to a slightly less dismal gain of 42,000 vs. the earlier 30,000 advance.

Now the bad news: the labor market is still growing at a sluggish pace. The pace is somewhat less sluggish than it appeared, say, yesterday, but nothing much has changed. In fact, October's growth represents a downshift from September's gain. The broader message is that the economy still needs a much higher level of job creation to make a significant dent in the unemployment rate, which explains why the jobless rate slipped by the smallest of margins last month to 9.0% from September's 9.1%. Yup, sluggish growth is still an accurate description of macro conditions. It may be enough to keep us from crashing, but it's not likely to do much more any time soon.

Click to enlarge

Of course, if you look at the top line number of payrolls, which includes government employment, the sluggish trend looks worse. Government workers were lighter by 24,000 last month, adding to September's 33,000 drop. As a result, total non-farm payrolls (the number that receives most of the media attention) rose by only 80,000 in October.

“We’re making progress at a very slow pace,” says John Silvia, chief economist at Wells Fargo Securities. “It indicates continued consumer spending, getting a little better over time. The labor market is consistent with moderate economic growth.”

The potential for danger, however, is more than trivial if there's serious blowback from the euro crisis in the weeks and months ahead. Confidence is vulnerable these days, presumably for a myriad of reasons that need no explanation at this late date. It's certainly helpful to see job creation moving ahead, albeit slowly. But it wouldn't take much to crack the thin veneer of upward momentum if the continent's crisis goes into a death spiral. Granted, that may be a low-probability event, but no one is dismissing fat-tail risks these days.

"It's not a game-changer but when you take into account the upward revision (in U.S. employment) to prior months and the drop in the unemployment rate, it's a step in the right direction," opinesJohn Canally, economic strategist at LPL Financial. "It's about in line with the growth you're seeing in the economy but it's not enough to break us out of the range we're in."