Positive US labour market figures give cause for hope

NON-FARM payroll figures for October confirmed that the US labour market has come out of another of its summer slumps. The economy created an extra 171,000 jobs during the month, despite a slowdown in exports and business investment.

The figure is still mediocre – the population aged 16 or over rose by 211,000 so jobs growth was barely enough to keep up – but the figures are moving in the right direction.

Payroll growth for the two previous months was revised upwards by a total of 84,000 jobs, suggesting that the economy had a little more momentum than previously thought.

That is a reminder of the potential for variation that accompanies the payrolls report. The margin of error for the payrolls number is plus or minus 100,000 jobs and for the unemployment rate it is ±0.2 percentage points. Payrolls growth for August was initially reported at 96,000; after a few months of revisions it is 192,000.

But the most interesting feature of the October report was the rise in the labour force, with an extra 578,000 people saying they were working or looking for work, a promising sign for the broader health of the economy. Jim Baird, at Plante Moran Financial Advisors, said: “Over the course of the last two months, workers have been returning to the labour force, which has grown by an estimated 1m individuals since the beginning of September. It appears that the long-anticipated return of discouraged workers to the workforce may be starting.”

The labour force participation rate rose from 63.6 per cent to 63.8 per cent.

That suggests there may be enough jobs on offer to lure people who had given up looking back to work.

The unemployment rate will fall less rapidly if more people return to the labour force. But it will suggest that those workers who left are still employable and that the productive potential of the US economy was not damaged by the recession.

Ben Bernanke, chairman of the US Federal Reserve, has emphasised the need for faster jobs growth to stop people drifting away from the labour market for good. The central bank is likely to take heart from the report, and read it as a sign that it can push for faster job growth without triggering inflation.

“The Fed desires both a substantial and sustainable improvement in labour market conditions and is likely to read recent payroll growth as a positive step in the right direction, but just one step in a longer journey,” noted Michael Gapen at Barclays in New York.

Manufacturing employment rose for the first time in months, adding 13,000 jobs. – Copyright The Financial Times Limited 2012