U.S. labour market: little in the way of surprise, continued solid

A rather unspectacular labour market report was published today, just a few days before approximately 226 million U.S. citizens step up to ballot boxes across the country to vote for the next President of the United States and elect large swathes of Congress. Outside the agriculture industry, the number of people employed in the USA rose by 161,000 in October, reducing the unemployment rate from 5.0% to 4.9%. The somewhat reserved data for job growth in both of the previous months were revised slightly upwards at the same time. If we were to disregard employment figures for the manufacturing sector, then it would be possible to believe that the reasonably pleasing trend on the labour market may well boost the chances of the Democratic Party candidate emerging victorious.

Since the beginning of the year, the number of persons employed in the USA has risen by 1.8 million and recently has been just a smidge under the 150 million mark. Nearly 200,000 new jobs have been created in the public sector, which is more than double the figure for 2015, on account of it being an election year. In the private sector, the momentum may well have dropped off compared to 2015, although 1.6 million new jobs were still created here. However, this obscures the fact that 63,000 industrial jobs were cut, although there was more positive news emanating from the service sector, where an additional 1.7 million jobs were created. This development is likely to be used by the Republican candidate as a justification of his election manifesto in which he says that it is necessary to stop the decline in jobs in the industrial sector.

From the report published today, we draw the conclusion that it confirms the development of the decelerating employment dynamic as has been observed over the course of the current year. Nevertheless, the bottom line is that the momentum of the U.S. labour market is still significantly above the long-term average. The fact that the unemployment ratio has clung to the 5% mark can be attributed to the huge flow of returnees in the past few months. These include people who were regrettably not available for employment during the financial crisis. Since the beginning of the year, they have been expanding the labour supply quite substantially. In October, the unemployment ratio therefore fell slightly, above all because the labour supply shrank for the first time in five months. Overall, the latest labour market report does not pose any obstacle to a key rate hike from the Fed at its next meeting.

We assess the increase in wages of 0.4% against the previous month as more of a case of “one swallow does not a summer make”. Numerous returnees to the labour market may well restrict wage dynamics in the coming months as well. The increasing shortage of qualified personnel should, however, ease pressure on wages. In the coming year, the unemployment ratio will slowly continue its downward trend. We estimate that there are still a not insignificant number of people making up what is known as the “hidden reserve”; these are people who, on the one hand curb wage dynamics and, on the other, limit the decline in unemployment figures.

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