Skip to main content

U.S. Job Gains Not As Strong As They Seem

Cut retail and temp jobs and Friday's report is less impressive.
  • Author:
  • Publish date:
Comments

We've just about run out of superlatives to describe Friday's October U.S. employment report -- pundits have described the creation of 271,000 non-farm jobs as a "blowout," a "game-changer" and a "major turning point." The report also once again shifted expectations regarding a potential Federal Reserve interest-rate hike.

But there was much more to the report than just the 271,000 headline figure. Before we accept the idea that the figures truly represented a blowout, let's take a few other things into consideration.

Of all of the employment categories that the report covers each month, I'd argue that temporary jobs are the least desirable. These tend to be low-paying positions, and obviously those who obtain them will be looking for work again in the near future.

Worse, the choice to hire temporary workers rather than permanent ones is often a "no-confidence vote" by employers. If businesses felt better about their future prospects, they'd opt for permanent hires.

Well, here are the number of temporary jobs that the U.S. Bureau of Labor Statistics says the economy added over the past three months:

  • August: 5,700
  • September: 2,600
  • October: 24,500

Note October's surge. If we replace the month's big number of temporary hires with a more-typical number of around 3,000, Friday's report would only show a gain of about 250,000 jobs.

That's still impressive, but another industry that experienced a hiring surge was the retail sector. Job gains there spiked to 43,800 in October from just 4,100 in August and 5,800 in September.

Again, that's a category that represents low-paying, potentially temporary positions. And while it's not unusual to see store employment surge this time of year (October 2014 saw 26,300 retail hires), these usually aren't high-quality jobs -- and their addition doesn't typically represent a major turn in the economy.

So, if we remove the "padding" of retail and temporary jobs out of the October employment report, we're left with around 210,000 job gains. That's nothing to sneeze at, but I wouldn't classify it as a blowout, either.

Next, let's add our adjusted 210,000 October gains to the 153,000 jobs created in August and 137,000 from September. That gives us 500,000 total jobs created over three months, or 166,666 per month on average -- and that doesn't even back out any unusually high August or September temporary and retail jobs. I'd hardly consider that a reason to pop open some champagne.

The bottom line: When the August employment report came in well below expectations, markets shrugged it off as an anomaly. Perhaps Friday's strong October report should be taken with a similar grain of salt, too.