October Jobs Jump Does Not Mean the World has Changed

Last Friday, many news headlines screamed about a massive beat on the Nonfarm Payrolls number.

I spoke with Kevin Harris, a Director on the North America team at EconoMonitor’s sister company, Roubini Global Economics, who provided context on the NFP number and the broader trend that it represents.

Nonfarm payrolls surged 271,000 in the month of October — blowing through the median NFP forecast of 185,000. October’s Nonfarm Payroll also was a major improvement over the previous month’s number, which came in at 137,000 after being revised down from 142,000. While this surging number may have inspired a mania of optimistic headlines, it’s important not to lose sight of the broader context.

The wrong way to look at any economic number is to look at it in isolation. When we look at the three month moving average, including last Friday’s October NFP number, average payroll employment growth now stands at 186,000.

The back story is this: Markets got spooked earlier this summer, when financial conditions deteriorated rapidly — due, in large measure, to market volatility in China.

In January of 2015, the three month moving average of nonfarm payroll creation stood at 318,000. By June, the three month moving average for nonfarm payroll creation had declined to 231,000. What we are seeing, in fact, is a steady slowing in the rate of employment gain in the United States. Given the broader context, that’s natural. Employment gains in 2014 were extremely rapid, averaging 260,000 jobs per month. As a consequence of that rapid growth, the pace of hiring, on average, is now cooling.

Friday’s NFP number was an answer to a big question: Did the financial shock this summer permanently erode U.S. growth — or did it only dent it temporarily? For now, at least, the answer appears to be that the damage done to U.S. hiring by the summer financial shock has passed. The prior slowing trend is still in place — but no worse than it was before.