The headline jobs number was strong, with 165,000 new jobs in October and unemployment down to 4.1 percent, but the broader measure of the labour market told a more complicated story. The underemployment rate, which counts people working part time because they cannot find full time work as well as those who have given up looking, rose to 7.9 percent from 7.6 percent in September. The number of people working part time for economic reasons rose by 339,000 to 4.8 million, a sharp move in a single month, and one that sits awkwardly beside the celebration of the headline figure.
Why it matters
The two numbers are not contradictory. They are measuring different things, and both can be true at once. The payroll survey, which counts jobs, showed strong hiring, with professional and business services adding 70,000 jobs and healthcare and transportation also adding workers. The household survey, which counts people, showed that more workers are settling for fewer hours than they want, and that the labour market is softer underneath the surface than the headline suggests. The unemployment rate has stayed between 4.1 and 4.3 percent since March, but the underemployment rate is now moving in the wrong direction, and that is the number to watch.
The participation rate adds a third piece to the picture. It inched up to 61.9 percent in October from 61.8 percent in September, a small move, but a move in the right direction, because a smaller labour force means employers need to add fewer jobs to keep the unemployment rate steady. About 7.1 million people were unemployed, little changed from the month before, and the average monthly gain over the past year had been only 48,000, against 165,000 in October. The report is therefore both a beat and a warning: hiring is strong, but the quality of the work being found is not keeping pace with the quantity.
What happens next
For the Federal Reserve, the fuller picture complicates the decision. A strong headline gives policymakers more room to focus on inflation, which ran at 3.7 percent over the year to September, and traders raised the odds of a December rate increase to about 78 percent. But a rising underemployment rate is a sign of slack, and slack is the reason central banks cut rates rather than raise them. The Fed held its benchmark rate at 3.75 to 4.00 percent at its October 28 meeting, and its next decision comes on December 8 and 9, after the November inflation report on November 10. The two reports will pull in opposite directions, and the Fed will have to choose which one to believe.
What happens next will be decided by whether the part time surge is a blip or a trend. A single month move of 339,000 is large, but it is also the kind of number that can reverse quickly, and the next jobs report, on December 4, will show whether it holds. For workers, the message is mixed: there are jobs, and pay is rising, with average hourly earnings up 3.1 percent over the year, but the hours are not always there, and the security that comes with full time work is harder to find. The headline says the labour market is strong. The detail says it is strong, and fragile, at the same time.
