October employment figures for the United States were released last week by the Bureau of Labor Statistics (BLS). As we have analyzed in this space, the evolution of the labor market is, together with inflation, the most important factor in the monetary policy decision-making process by the Fed.
The weakness in the job creation figures during August and September had cast doubt on the Fed’s ability to reach the full employment goal through highly expansionary monetary policy in an environment of growing inflationary pressures. It should be remembered that the preliminary employment figures for August and September were significantly below the consensus of expectations.
During August, the US economy added 235,000 new jobs against an expectation of 730,000, while in September the preliminary figure showed a creation of 194,000 jobs against an estimated 500,000.
This situation occurred despite the expiration of the extraordinary unemployment support programs at the beginning of September. However, the release of the October figures, which included a major upward revision to the August and September figures, showed a significant trend reversal. According to BLS data, the non-farm payroll in October showed an increase of 531,000 jobs, above the consensus of 450,000.
Additionally, the August and September figures were revised up by 117,000 and 118,000 jobs respectively. With these data, monthly job creation reaches an average of 582,000 jobs so far this year.
After incorporating these figures, the employment deficit compared to the pre-pandemic level stands at 4.2 million jobs – 22.4 million jobs have been lost and 18.2 million have been recovered.
Although the hospitality and restaurants sector is where there is still the greatest lag – the employment deficit compared to February 2020 is 1.4 million – this sector showed a recovery of 164,000 jobs in October, leading to the annual number of jobs created in this sector to 2.4 million.
For its part, the unemployment rate went from 4.8% in September to 4.6% in October, which represents its lowest level since February 2020 when it stood at 3.5 percent.
The number of unemployed people fell from 7.6 million in September to 7.4 million in October, also a post-pandemic low – the figure was 5.7 million in February 2020.
The labor participation rate remained at 61.6%, which still represents a significant deficit vs. 63.3% prior to the pandemic.
As we have analyzed in previous editions of Sin Fronteras, there are a large number of workers who have preferred to remain unemployed for various reasons. While some people may have chosen not to rejoin the workforce for health reasons, it is also likely that others have preferred to stay home while receiving direct cash transfers from the government. Although these transfers have already ended, many households increased their savings capacity during the pandemic by continuing to receive income and simultaneously seeing their spending reduced.
These savings have allowed the participation rate to remain below pre-pandemic levels despite the growing supply of jobs and the constant increase in salary levels.
The average hourly wage in October had an increase of 0.4% compared to September, accumulating an increase of 3.5% so far this year and 8.6% against the level of February 2020.
This change in the trend in employment figures, which should accelerate in the coming months, endorses the Fed’s vision that there is substantial progress with respect to the full employment goals and that the time has come to start withdraw monetary stimulus to combat an inflationary spike that, by all accounts, is less transitory than the Fed expected.
Socio Director de EP Capital, S.C.
Without Borders
Joaquín López-Dóriga Ostolaza is Managing Partner of EP Capital, SC, a consultancy specialized in mergers and acquisitions founded in 2009.
He is a graduate of the Bachelor of Economics from the Universidad Iberoamericana, where he graduated with honorable mention and the highest average of his generation. He has a Master’s degree in Economics from the London School of Economics, where he was distinguished with the British Council Chevening Scholarship Award.
Reference-www.eleconomista.com.mx