Perspectives on October Employment

Written by Richard Hokenson 

The outcome for wages was as we expected. Average Hourly Earnings (AHE) increased by 3.1% year-on-year (see Chart 1). Scarcely mentioned was the fact that the uptick from 2.8% in September benefitted from October of last year being a depressed level. Wage gains are still soft compared with other periods of similarly low unemployment which is line with our forecast that wage gains are moderate. Moreover, it is by no means a foregone conclusion that the “3” handle will be maintained for long. – AHE bounced back in November of last year with an even stronger gain in December. It is very conceivable that this year could end with wage inflation below 3%.

For more months than we care to remember, a fairly standard observation has been that the supply of potential workers has been exhausted, i.e. it is not possible for further significant increases in the labor force. The reality is that the average growth in the labor force thus far in 2018 is 171,000 per month which makes this year the largest in the recovery (see Chart 2)!

The labor force participation rate for prime-age workers rose to 82.3%, its highest rate since 2010. The data on gross labor flows shows that the vast bulk of the increase in the labor force comes from persons who were not in the labor force last month who become employed this month (see Chart 3). A diminishing impact is persons not in the labor force last month who became unemployed this month (see Chart 4).

Foreign born labor market developments continue to be a topic that we monitor closely as they are a potential wild card considering the harsh tone from the administration. So far, there does not appear any problematical issues despite the negative tone. Growth in foreign born employment remains strong as does the foreign born labor force (see Charts 5 and 6). Concerns regarding the 2017 second half stall in the growth of the foreign-born population have diminished as more recent data show a resumption of gains (see Chart 7).

We are very encouraged that Fed Chairman Jerome Powell believes that the expansion can continue for an “effectively indefinite period”. He cites Fed research that shows that the Phillips curve is now almost flat. This is consistent with our view that the natural rate of unemployment (NAIRU) has yet to be breached.



This update was researched and written by Richard Hokenson, as of November 9 2018