Peter Boockvar

Payrolls grew by 261k in October, above the estimate of 193k and the two prior months were revised up by a combined 29k. About half of the upside surprise came from government workers. The private sector added 233k vs the forecast of 200k. In contrast, the household survey saw a job loss of 328k and when combined with a 22k person drop in the labor force, the unemployment rate jumped up by 2 tenths to 3.7% after falling by 2 tenths in September. The all in U6 rate rose one tenth to 6.8%. Within that household survey, the key age group of 25-54 yr olds lost 489k jobs.

The participation rate rose one tenth to 62.2% but was at 62.4% two months ago while the employment to population ratio was down by one tenth to 60%. The important 25-54 yr participation rate though fell 2 tenths to 82.5, a 3 month low. The workweek held at 34.5 as expected. Average hourly earnings rose .4%, one tenth more than forecasted and up by 4.7% y/o/y, a slowdown from the 5%+ pace seen mostly this year BUT, the comparison is getting tougher as this figure was up 5.4% in October 2021. When combined with weekly hours, average weekly earnings were up by .4% m/o/m and 3.8% y/o/y. Leisure/hospitality workers saw a 6.5% y/o/y rise in wages and 6.3% in transportation and warehousing. Manufacturing wage growth slowed to 3.6% y/o/yJob leavers as a % of the unemployed fell back to 14.6% from the jump to 15.9% last month which was a high.

The private service sector contributed 200k of the total job gain vs 271k in September, 190k in August and 385k in July. Hiring in leisure/hospitality totaled 35k and we also saw notable job gains in education/health (always the case) and in trade/transport. Retail added 7k after losing 8k last month. Hiring in Information (which would include tech) saw net hiring of just 4k vs 7k in each of the prior two months and the least since February. The goods sector saw 32k come from manufacturing and just 1k from construction (not surprising with the rise in rates). As stated above, the government added 28k.

Smoothing out the monthly volatility puts the 3 month payroll average at 289k vs the 6 month average 347k, the 12 month average of 442k and the 2021 average of 562k. Thus, the slowing trend is now obvious and the rise in the unemployment rate, derived from the household survey, rose for the wrong reasons of lost jobs and a drop in the size of the labor force. While the wage growth comparisons are getting tougher, it’s clear that they are no longer accelerating and remain well below the rate of inflation. That said, for service sector jobs, particularly for those where people need to be in person, I expect wage gains to remain very persistent around 5-6% but I expect white collar workers will not have the same leverage and whose jobs are more vulnerable as seen in tech land.

Lastly, the Birth/Death model added 455k which is almost 100k more than October 2021 print of 363k and in October 2020 of 344k. Pre-covid, it added 274k in October 2019. This plug in ALWAYS misses inflection points so if one wants to dig deep on today’s headline payroll figure, this component has over stated it by about 100k.

The 2 yr yield was 4.75% right before the number and after rising to 4.77% on the headline beat is at 4.73%. The 10 yr yield is up a few bps post number. I don’t think this changes anything in the Fed’s calculation but I do believe the trend in the unemployment is now going higher and will be 4%+ soon. And this in turn will lead to the eventual end to the rate hikes, if not done beforehand because of other accidents and/or a sharp drop in inflation.