Hiring in the United States remains modest, but appears to have momentum.
A raft of data Thursday suggests the sharp drop in the unemployment rate in September was less a fluke, and likely indicative of an economy that is slowly and steadily expanding.
Here are the headline numbers: Automatic Data Processing Inc.’s monthly survey of private sector employment rose by 158,000 from a downwardly revised gain of 114,000 in September; the four-week moving average of first-time jobless claims dropped to 367,250 from 368,750; the U.S. productivity rate, which measures output per hour worked, increased at a rate of 1.9 per cent in the third quarter, the same as the previous quarter; and the Institute for Supply Management’s monthly index of factory hiring was 52.1 in October, signalling an increase from the previous month, but was 2.6 percentage points lower than the September reading.
None of this is especially inspiring. The initial reaction of some Bay Street and Wall Street economists was that the consensus estimate for October’s official hiring report, which will be released by the Labor Department Friday, could be a little low. The median forecast of a survey by Bloomberg News suggests U.S. employers added 125,000 positions last month, a gain that would be little better than what is needed to stay ahead of population growth.
Combined, Thursday’s data are a “net positive,” but don’t “suggest anything other than the current lacklustre job growth,” Adrian Miller, director of global markets strategy at GMP Securities in New York. “It’s a steady-as-she-goes theme” for October, Mr. Miller added.
Always important, jobs data loom larger than ever because the presidential election is being fought over the economy and the Federal Reserve has pledged to keep borrowing costs low until the unemployment rate falls to a level closer to its liking.
The unemployment rate dropped to 7.8 per cent in September, falling below 8 per cent for the first time since the first month of Barack Obama’s presidency. A jobless rate of less than 8 per cent would bolster Mr. Obama heading into the final weekend of the campaign because he could argue that the economy has forward momentum, key to incumbents retaking the White House in elections past.
Economists have a love-hate relationship with the ADP number. The firm is a major processor of payrolls, and derives its estimate from roughly 406,000 U.S. clients that employ more than 23 million people. Yet the ADP report is prone to big misses when compared with the Labor Department’s initial estimate. ADP enlisted Moody’s Analytics to overhaul its methodology and now says its data has a 96 per cent correlation to the government’s reports.
It will take months for the new ADP and Moody’s collaboration to earn a track record. Still, the jump in October from September at the very least signals direction. Last month’s increase was the biggest since a 227,000 gain in February.
Meanwhile, the U.S. productivity rate has slowed to a pace more in line with its trend of about two per cent. That’s important because stronger productivity aligns with stronger growth and stronger hiring.
The U.S. labour department revised productivity growth in the second quarter to 1.9 per cent from 2.2 per cent. A flattening out of productivity isn’t indicative of a strong economy. “Steady as she goes” is about as good as it gets.