October jobs not a big surprise

The October jobs report came in way above expectations (271K vs. 185K), and even more so considering upward revisions to prior months. Does this show the economy suddenly picked up speed? No. It's most likely just seasonal and/or statistical noise. As I've been arguing for months (and as I predicted yesterday) the monthly vagaries of the jobs numbers have not really changed the big picture of the economy, which continues to be one of disappointingly slow but relatively steady growth of 2-2.5% per year. 

If anything, today's headline should have read "BLS jobs catch up to ADP jobs." Both surveys have been tracking each other very well for the past several years, but the BLS numbers have proved more volatile. They were much lower than the ADP numbers as of yesterday, and now they are above. But both are saying the same thing for the past year and two years: private sector jobs growth is averaging about 225K per month.

The first of the above charts shows the monthly change in private sector payrolls, while the second shows the year over year rate of growth. Essentially, today's report simply confirmed that the economy is "steady as she goes."

If this had been a normal recovery, there would be many millions more employed and the economy would be about $2.6 trillion bigger, But let's not forget that there has been a net increase of about 5 million private sector jobs since the peak of the prior business cycle expansion. We are making progress, but it's painfully slow.

Businesses are not investing much, and the labor force is not growing much. The economy suffers from a failure to thrive, for a variety of reasons that are by now well-known: very high marginal tax rates (punitively high on businesses), increased and heavy regulatory burdens, generous transfer payments, policy uncertainty, and lingering risk aversion left over from the Great Recession.

The Fed can raise rates at the FOMC meeting (the implied probability of which is now 70%), and the sky is not going to fall. When they do raise rates, some of the policy uncertainty will fade, and the economic fundamentals will improve on the margin. This is all good news.