Meet the Author

Yoonsoo Lee |

Research Economist

Yoonsoo Lee

Yoonsoo Lee was formerly a research economist in the Research Department. His areas of research include macroeconomics, labor economics, and regional economics.

Meet the Author

Michael Shenk |

Research Assistant

Michael Shenk

Michael Shenk was formerly a research assistant in the Research Department of the Federal Reserve Bank of Cleveland. His work focused on international topics and housing-market indicators.

11.14.07

Economic Trends

The Employment Situation

Yoonsoo Lee and Michael Shenk

Nonfarm payrolls increased by 166,000 jobs in October.This is the largest gain since May and doubled market expectations of a gain of 83,000.  The unemployment rate remained about the same at 4.7 percent, and the labor force participation rate was essentially unchanged (65.9 percent from 66.0 percent in September).  The headline number in this report suggests that the labor market remains stronger than economists expected, calming fears about the ongoing decline in housing sectors and the turmoil in financial markets spilling over to other sectors. However, stronger-than-expected gains were not broadly observed across all sectors.

In fact, job gains in October were quite skewed, centering on service sectors, which repeats a recent pattern.  Goods-producing sectors continued to show weakness, shedding 24,000 workers.  The loss of 21,000 jobs in manufacturing puts the average change over the last three months at -28,000 jobs, the lowest three-month average since September 2003.  Employment losses in durables (-12,000) are concentrated in transportation equipment (-7,400) and computer and electronic products (-4,300).  Overall, the construction industry lost 5,000 jobs last month.  Jobs in residential construction fell by 21,500, reflecting a sharp decline in the housing sector.  Nonresidential construction remained resilient, adding 15,000 jobs in October.

Labor Market Conditions

 

2004

2005

2006

2007 YTD

October  2007

Payroll employment

172

212

189

125

166

 

Goods-producing

28

32

9

-23

-24

 

 

Construction

26

35

11

-8

-5

 

 

 

Heavy and civil engineering

2

4

2

0

1

 

 

 

Residentiala

9

11

-2

-6

-22

 

 

 

Nonresidentialb

3

4

6

2

15

 

 

Manufacturing

0

-7

-7

-17

-21

 

 

 

Durable goods

8

2

0

-12

-13

 

 

 

Nondurable goods

-9

-9

-6

-4

-9

 

Service-providing

144

180

179

148

190

 

 

Retail trade

16

19

-3

3

-22

 

 

Financial activitiesc

8

14

16

1

2

 

 

 PBSd

38

57

42

24

65

 

 

 

Temporary help services

11

18

-1

-6

20

 

 

 

Education and health services

33

36

41

49

43

 

 

 

Leisure and hospitality

25

23

38

32

56

 

Government

14

14

20

22

36

 

 

Local educational services

8

6

11

10

35

 

 

 

 

Average for period (percent)

Civilian unemployment rate

5.5

5.1

4.6

4.6

4.7

a. Includes construction of residential buildings and residential specialty trade contractors.
b. Includes construction of nonresidential buildings and nonresidential specialty trade contractors c. Financial activities include the finance, insurance, and real estate sector and the rental and leasing sector.
d. PBS is professional business services (professional, scientific, and technical services, management of companies and enterprises, administrative and support, and waste management and remediation services.
Source: Bureau of Labor Statistics.

The gain in overall employment reflected a 130,000 increase in private payrolls and a 36,000 gain in government payrolls.  Most of the gains in government are from local educational services (35,000), a sector that went through significant revisions in recent months (see August and September employment situations).In August, the BLS originally reported a 32,000 loss in local educational services.  This number, after two revisions in September and October, now stands at a 54,000 gain.As the BLS catches up on unusual seasonal changes around the start of the school year, the gains in September and October are very likely to be revised again.

The private service sector continued to add jobs at a slightly faster rate. The three-month moving average of employment growth in the sector accelerated slightly (120,000 as of October), although this pace was lower than earlier this year.  Employment gains were quite strong in Professional Business Services (65,000 gains, up from 23,000 in September).  Education and Health Services added 43,000 jobs in October, but the gains in September in this sector were revised down from 44,000 to 29,000.  Leisure and Hospitality also continued to add jobs (56,000) in October, along with 15,000 additional gains in September due to the revision.  However, such strength in the service sector is not broadly observed.  Retail Trade continued to lose jobs during the month (-22,000).  Recent turmoil in the mortgage market has been a major issue in the financial markets. While lenders (credit intermediation and related service) cut 5,000 jobs, employment in financial sectors did not change much.

Overall, this month’s report suggests that the labor market remains stronger than most were expecting.  However, it is worth noting that monthly numbers are volatile and subject to revision.  In last month’s report, the Bureau of Labor Statistics (BLS) revised away the 4,000 job loss originally reported in August, raising that estimate to a gain of 89,000.  Although this report’s revisions to September (-14,000) and August’s (4,000) employment numbers are relatively small, payroll gains in September and October are subject to revision in the next report.  Excluding volatile government series, the three-month moving average of private payroll growth remains at the low end of the range it has been in since 2004.  In a positive sign, temporary help employment, which is often used as a leading indicator of the overall labor market, grew by 20,000 after successive  declines in recent months.  However, softness in goods-producing sectors remains a concern for the economy.