The October Non-Farm Payrolls rose by 171,000 net jobs and the unemployment rate moved up to 7.9% from 7.8%. The civilian labor force and labor force participation rates increased. Both of these are positives. Increases were modest and are coming off multi-decade lows. Less positive was a slight increase in black unemployment to 14.3%. The broad measure of unemployment that includes involuntary part-timers and the marginally attached, U-6, edged down from 14.7% to 14.6%. The public sector continues to be the area of greatest employment weakness. The public sector's total employment declined by 13,000 net jobs in October 2012. Unusually, the federal (-6,000) and state (-7,000) governments shed jobs while local employment was unchanged.
95% of new job creation was in the private service sector, 163,000 of 171,000 jobs created. August and September Non-Farm Payrolls were revised upward. August was revised from +142,000 to +192,000 and September was revised from +114,000 to +148,000. Revision added 84,000 to job growth over the last 2 months. We are tracking to have a 2012 jobs story very similar to the 2011 job story.
The October Non-Farm Payrolls are very much a political report. In 4 days voters, committed and swing, will vote with spin regarding this data ringing in their ears. Thus, we must approach the jobs numbers with extra care to avoid being part of the deafening chorus of cheers and equally voluminous chorus of jeers. This is a modestly positive jobs report. Our 2012 average is 157,000 net new jobs a month. Thus, this month's numbers are very much in keeping with recent performance. The public sector remains very weak. This may become more of an issue as patience runs low regarding the cleanup and recovery from Super Storm Sandy. We continue to think the missing story is earnings. These are stagnant to down over the last 4 years and counting. Over 92% of the labor force is employed. They have not seen real wage growth in years. This is the missing discussion as we focus on vital jobs numbers. Hours and wages remain depressed.
The average workweek for production and nonsupervisory employees on private nonfarm payrolls edged down by 0.1 hour to 33.6 hours. In October, average hourly earnings for all employees on private nonfarm payrolls edged down by 1 cent to $23.58. Over the past 12 months, average hourly earnings have risen by 1.6 percent. In October, average hourly earnings of private-sector production and nonsupervisory employees edged down by 1 cent to $19.79.
Employment Situation Summary 02 November 2012
The productivity numbers, released on Thursday 01 November, continue to be under factored and under-reported. This is a quarterly series and deserves much more attention. Q3 2012 Productivity showed a sharp rebound and posted a 1.9% seasonally adjusted, annual rate increase. Unit labor costs decreased in Q3. This tells us, once again, that hours worked are lagging output per hour. This indicates we continue on the trend of increasing profits with weaker labor demand and wage/salary growth.
Over the last 12 months prices, as measured by the Consumer Price Index (CPI) have increased by 2%. Hourly compensation has increased 1.8%. Americans are producing more at work and their wage/salary increases are less than rising costs of what they produce and purchase. Doing more for less is a feature of the last 4 years and is contributing to growing inequality and economic dissatisfaction among the majority of Americans. Real Hourly compensation is down .4% over Q3. In 2011 real hourly compensation, average hourly wages adjusted for price changes, decreased by .5%.
Weak job growth, and even weaker earnings growth has produced much of the dissatisfaction that polls, pols and the public voice. We have seen consumer confidence and spending rise. It is not driven by wages. It is low interest rates and declining savings that are sustaining the economy. We have seen profits raise and stay above economically and politically stable levels. To balance the economy and have meaningful and sustainable growth, wages and savings have to rise. This suggests that profit growth, without enhanced macroeconomic growth, can not and will not continue. Thus, equity prices and valuations are now based on income redistribution and easy monetary policy. Neither of these supports can be increased- or continue- too much longer. Thus, we run a risk that earnings and multiples compress. We will need economic and wage growth well above trend to prevent this.
If you don't see wage led economic growth coming, have you factored that into your equity earnings and multiples forecasts? Very few have.