Monthly US Employment Analysis - October 2019

October 2019 Monthly US Employment Analysis

Edward Leamer, Professor Emeritus, UCLA Anderson School
November 1, 2019

The October 2019 payroll release of 128,000 jobs is less than the (revised) 180,000 last month, and those who are worrying about the next recession might take that as something more to worry about. But it is difficult to discern the real meaning of that measured decline because the payroll data have some extreme ups and downs, with a big decline followed in the next month by a corrective big increase.

The news in these releases can be captured by two smoothed series, one based on just the overall payroll data and another one that includes the components of the payroll data like nondurable manufacturing. The actual and the smoothed versions are illustrated in the figure below. Both of the smoothed series are up this month, not down. Don’t despair. This news in the payrolls data is actually good, especially considering the temporary impact of the General Motors strike.

The right (half) story: During the first half of 2019, the rate of increase in payrolls fell from around 210,000 to around 160,000, but since the trough in June, filtered payrolls have steadily increased to 190,000 in October even with the weakness in manufacturing because of the GM strike.

Figure 1

Recession Alert: Declining Weekly Hours in Manufacturing

HOWEVER, the real recession news lies elsewhere in this Bureau of Labor Statistics release: Average weekly hours in manufacturing have declined steadily from 42.4 in April 2018 to 41.4 in the current release. Manufacturers facing weak demand first respond by cutting overtime hours, and only when the situation seems long-lasting do they reduce jobs. Thus, as is suggested by the two images below, declining weekly hours is a much better indicator of an oncoming recession than decline in jobs, and a decline in hours portends a decline in jobs. This decline in hours is enough to substantially increase the recession risks.

Figure 2

Figure 3

UCLA Anderson Forecast