The October jobs report was strong. Payrolls shot up 531,000 and the unemployment rate fell to 4.6%, the lowest since the pandemic began.
The reaction from economists and labor-market observers was mostly hopeful.
“This is the kind of recovery we can get when we are not sidelined by a surge in COVID cases,” Indeed's economic research director Nick Bunker said. "If that metric were to grow at its recent pace, it would hit its pre-pandemic level by next fall.”
Healing from the coronavirus impact continued, as the hospitality and leisure sector saw solid growth. Every time a spike in cases occurred, this industry suffered.
Bunker pointed out that total payrolls are still 8% down from pre-pandemic times, but said that “today’s report is a sign that recovery could be closer than many thought.”
Pretty good, but more upside on the table
As ING’s James Knightley put it, “decent US jobs growth, but it should be so much better,” noting a "sense of mild disappointment.”
Bank of America’s US economists said much the same, and added another dose of caution to the well-received news, reminding clients of the still challenging situation, especially with the labor participation rate.
“The ongoing decline in the unemployment rate and strong wage growth suggest labor market slack is diminishing rapidly,” analysts wrote. “That said, there are still 4.2 million fewer people employed today than in February 2020 and the labor force participation rate was unchanged at 61.6%.”
That stagnant participation rate, they added, stems from a surge in retirements (“The Great Resignation”) and concern over Covid, as well as the continued issue of childcare. The participation rate for prime age workers (25-54) is still under its pre-pandemic level (81.7% to 83.0%), a bit of labor market slack that Fed Chair Jerome Powell mentioned at the Federal Open Market Committee meeting this week.
Even the rise in wage growth wasn’t enough to change this supply issue, BofA analysts added.
Hourly wages rose 0.4% compared to September, for a 4.9% year-over-year growth, a trend of rising wage growth Oxford Economics call “The Great Negotiation.”
Knightly said wages have further to climb: “Pay will have to be bid higher, with those cost increases likely passed onto consumers.”
The good news for bulls is that this strong performance — as the market sees it — could have solid follow-ups.
That slack of under-utilized prime-aged workers is also an opportunity. ZipRecruiter's chief economist Julia Pollak said there's still "more fuel in the tank" and 5 million or more workers could come back. “If pandemic conditions continue to improve, and the unemployment rate continues to fall, we could see large numbers return, easing labor shortages and hiring constraints,” she said.
Oxford Economics analysts said this report was like clouds dissipating, and agreed with Pollak’s estimate that if the Covid situation continues to improve — Pfizer (PFE) just announced a new therapy it says is effective — job growth should be at a “cruising speed of +400k to +600k per month into 2022.”
By the second half of 2022, analysts added, we could get to pre-pandemic levels of labor force participation and the unemployment rate could dip under 4% at the end of 2022.
Commonwealth Financial Network's head of portfolio management, Peter Essele, said this suggests a "possibility that the Santa Claus rally could be one of the strongest in recent memory."