In last month’s U.S. labor market briefing— U.S. Labor Market—Remaining stable despite concerns that real wage gains have evaporated (October 9, 2023) – I note that the real wage gains seen in previous months have disappeared, although there are no signs of a major slowdown. I’m not sure if this is a sign that a tipping point has been reached or is approaching. Last Friday (November 3, 2023), the U.S. Bureau of Labor Statistics (BLS) released the latest labor market data— Employment Status Summary – October 2023 – Data showed employment rose by just 150,000, a sharp drop from last month’s increase. The unemployment rate also continued to climb to 3.9% (previously 3.8%). While some may interpret this as a weakening trend, the question should be the appropriate benchmark we should be using. One could easily conclude that after all the pandemic noise, totals are returning to pre-pandemic levels. Another view is that the economy is slowing down. We’ll have to wait another month or so before we can differentiate between the two conjectures. After several months of real wage growth, we now observe nominal wage growth lagging modest inflation.
October 2023 Overview (seasonally adjusted):
- Wage employment increased by 150,000 (down from 336,000 the previous month).
- The total labor force survey employment dropped by a net 348,000 people (0.22%).
- There was a net decrease in labor of 201,000 (0.12%) – these changes may be due to sampling variation.
- The participation rate fell 0.1 percentage points to 62.7%.
- Total measured unemployment rose by 146,000 to 6.506 million, and would have been higher had the participation rate not fallen.
- The official unemployment rate rose 0.1 percentage point to 3.9%.
- The broad indicator of labor underutilization (U6) rose 0.2 percentage points to 7.2%, as the official unemployment rate rose and the underemployment rate rose (measured equally).
- The employment-to-population ratio fell 0.2 percentage points to 60.2% (still well below the June 2020 peak of 61.2).
For those who are confused about the difference between wage (establishment) data and household survey data, you should read this blog post – U.S. labor market conditions are worrying – I explain the differences in detail.
Some months the difference is smaller, and some months the difference is larger.
Salary Employment Trends
The Bureau of Labor Statistics states:
Nonfarm payroll employment increased by 150,000 in October, down from the 258,000 average monthly increase in the previous 12 months…
The healthcare industry added 58,000 jobs in October, in line with the 53,000 average monthly job gains in the previous 12 months…
Government employment increased by 51,000 in October, returning to pre-pandemic levels in February 2020. Over the past 12 months, government jobs have grown by an average of 50,000 jobs per month…
Social assistance added 19,000 jobs in October, compared with a monthly average of 23,000 in the previous 12 months…
…Construction employment continues to trend upward (+23,000), broadly in line with average monthly growth of 18,000 over the past 12 months…
Manufacturing employment fell by 35,000 in October…
Employment in the leisure and hotel industry was little changed in October (+19,000). Over the past 12 months, the industry has added an average of 52,000 new jobs each month.
Employment in professional and business services was little changed in October (+15,000) and showed little net change since May…
Employment in the transportation and warehousing industry was little changed in October (-12,000), and the net change for the year was little…
Information Employment was little changed in October (-9,000)…
Employment in other major industries was little changed this month…
All in all, monthly payroll employment growth appears to be returning to pre-pandemic levels, which could be interpreted as a slowdown, but the latter assessment is only relative to post-pandemic growth rates.
The first graph shows monthly changes in wage employment (in thousands, expressed as a 3-month moving average to remove monthly noise). The red line is the annual average. Observations between March 2020 and March 2022 were excluded as outliers.
The average line (without excluding outliers) gives you an idea of the extent of the economic slowdown in the two years before the COVID-19 outbreak.
The next graph shows the same data in a different way – in this case it shows the average monthly net change in wage employment (real) over the calendar years 2005 to 2023.
The red marks on the columns are the results for the current month.
Average monthly change – 2019-2023 (000s)
| Year | Average monthly employment change (000s) |
| 2019 | 163 |
| 2020 | -774 |
| 2021 | 606 |
| 2022 | Chapter 399 |
| 2023 (present) | 239 |
Labor Force Survey Data – Employment Growth Negative
Seasonally adjusted data for October 2023 shows:
1. The Labor Force Survey showed a net increase in total employment of 348,000 (0.22%) – indicating a rather significant slowdown.
2. The net labor force decreased by 201,000 (0.12%) – reversing last month’s sharp increase.
3. The participation rate dropped by 0.1 percentage points to 62.7%.
4. As a result (from an accounting perspective), total measured unemployment increased by 146,000 to 6.506 million – which would have been worse if the participation rate had not fallen.
5. The official unemployment rate rose 0.1 percentage points to 3.9%.
While I suspect some of these changes are due to sampling, I also think the U.S. labor market is slowing.
The chart below shows monthly job growth since January 2008 and excludes extreme observations (outliers) from March 2020 to March 2022 that distort the current period relative to the pre-pandemic period Case.
The employment-to-population ratio is a good indicator of labor market strength because the denominator, population, is not particularly sensitive to cycles (unlike the labor force), so changes are relatively clear-cut.
The chart below shows U.S. employment from January 1950 to October 2023.
In September 2023, the ratio remained unchanged at 60.2%, a decrease of 0.2 percentage points.
The peak in September 2020 before the outbreak was 61.1%.
Trends in unemployment and underutilization
The U.S. Bureau of Labor Statistics states:
The unemployment rate in October was 3.9%, and the number of unemployed people was 6.5 million, little changed. However, since the recent lows in April, these indicators have increased by 0.5 percentage points and 849,000 people respectively…
The number of long-term unemployed (those unemployed for 27 weeks or more) was little changed in October at 1.3 million. The long-term unemployed account for 19.8% of all unemployed people…
The number of people working part-time for economic reasons was 4.3 million in October, little changed. These are people who would have preferred full-time employment but are working part-time due to reduced hours or the inability to find full-time employment.
While the official unemployment rate has increased “modestly” over the past few months, much of the change is due to fluctuations in participation rates, some of which may simply be sampling changes.
The first chart shows the official unemployment rate since January 1994.
The official unemployment rate is narrow Measures of labor waste, which means strict comparisons with the 1960s, such as the tightness of the labor market, must take into account broader measures of labor underutilization.
The figure below shows the BLS metric U6, which is defined as:
Total unemployment plus all marginally dependent workers plus total employment held part-time for economic reasons as a percentage of all civilian labor force plus all marginally dependent workers.
As such, this is the broadest quantitative measure of labor underutilization published by the Bureau of Labor Statistics.
Before the COVID-19 outbreak, the proportion of U6 was 6.8% (January 2019).
In September 2023, the U6 index was 7.2%, up 0.2 percentage points due to rising underemployment and the official unemployment rate.
How are wages growing in the United States?
The U.S. Bureau of Labor Statistics report states:
Average hourly earnings for all private nonfarm workers rose 7 cents, or 0.2 percent, to $34.00 in October. Average hourly earnings increased 4.1% over the past 12 months. Average hourly wages for private-sector production and non-managerial workers increased 10 cents, or 0.3%, to $29.19 in October.
So there are still no signs of a salary breakthrough!
What’s more, real wages are continuing to fall.
Newest – U.S. Bureau of Labor Statistics (BLS) Actual Earnings Summary – September 2023 (Published October 12, 2023) —Tell us:
On a seasonally adjusted basis, real average hourly earnings for all workers fell 0.2% from August to September… This result was driven by a 0.2% increase in average hourly earnings, plus the Consumer Price Index (CPI) for all urban consumers. -U).
Real average weekly earnings fell 0.2% from the previous quarter due to a change in real average hourly earnings and no change in the average work week.
From September 2022 to September 2023, real average hourly earnings increased by 0.5% on a seasonally adjusted basis. The change in real average hourly earnings combined with a 0.6% fall in the average work week resulted in real average weekly earnings falling by 0.1% over the period.
So even with mild inflation, nominal wage growth has been so low that much of the real wage gains from previous months have been wiped out.
The table below shows the movement in nominal average hourly earnings (AHE) by industry and inflation-adjusted AHE by industry in September 2023 (note that we are using August CPI (the latest available data) Adjustment).
The slowdown in nominal wages affected most industries, with eight out of 19 industries recording monthly contractions in real wages.
The chart below shows the annual growth rate of real average hourly earnings from 2008 to September 2023.
Another indicator that tells us whether the labor market is turning in favor of workers is the turnover rate.
The latest data from the U.S. Bureau of Labor Statistics (BLS)—— Job vacancies and labor mobility summary (Published October 3, 2023)—Indicates:
The number of job openings on the last working day of September was little changed at 9.6 million… Throughout the month, total hiring and separations were little changed at 5.9 million and 5.5 million respectively. Among separations, resignations (3.7 million) and layoffs and layoffs (1.5 million) changed little. …
In August, there was little change in the number of people quitting smoking, at 3.7 million, and the quitting rate was 2.3% for the third consecutive month.
Therefore, in August 2023, the dynamics of the U.S. labor market were quite stable.
in conclusion
The latest monthly data showed that employment increased by just 150,000 people, a sharp decline from the previous month.
The unemployment rate also continued to climb to 3.9% (previously 3.8%).
While some may interpret this as a weakening trend, the question should be the appropriate benchmark we should be using.
One could easily conclude that after all the pandemic noise, totals are returning to pre-pandemic levels.
Another view is that the economy is slowing down.
We’ll have to wait another month or so before we can differentiate between the two conjectures.
After several months of real wage growth, we now observe nominal wage growth lagging modest inflation.
That’s enough for today!
(c) Copyright 2023 William Mitchell. all rights reserved.
