The declining job creation growth from 2015-2017 on a year over year basis caused fear because it implies the labor market cycle is nearing its end. However, those fears have been abated in 2018. The October report showed 250,000 jobs added which beat estimates for 190,000. The September report was revised down from 134,000 to 118,000, but that weakness was catalyzed by the hurricane. The August report was revised up from 270,000 to 286,000, meaning 2 of the past 3 reports have been very good. Sometimes great reports are tainted by negative revisions, but in this case, there was no net change in the past 2 reports combined which is a great sign.

Source: FRED

The unemployment rate was steady at 3.7% and the underemployment rate fell from 7.5% to 7.4%. The previous cycle troughed at 7.9% and the 1990s cycle troughed at 6.8%, putting the current level right in between the two. There has been an average of 212,500 jobs created in 2018. If that is steady for the rest of the year, it will be the 3rd best year of job creation since 2000 as you can see from the chart below. This indicates that the labor market still has slack since by growing faster than population growth it means people are coming off the sidelines.

Source: FRED

Terrible For Stocks & Bonds

Even though this labor report is great for workers since there was good job creation and solid wage growth, this was bad for the stock and bond market because it signals labor costs will increase and inflation might increase. Margins will be hurt by wage growth and the Fed might need to hike rates to keep down inflation. As a result of this report, the 10-year yield increased 8 basis points to 3.21% and the S&P 500 fell 0.63%.

Wage Growth Explodes

Let’s look at wage growth specifically now. Average hourly earnings growth was 0.2% month over month and 3.1% year over year. Year over year growth spiked from 2.8% in the previous month, beating estimates for 3%. It’s best to look at weekly wage growth to measure take-home pay as the amount people work shifts. The workweek was steady at 34.5 hours. Average weekly earnings growth was 3.4% which marginally beat the previous cycle peak in October 2010. This growth is far more consequential because more workers are employed now. This is the highest weekly earnings growth since August 2007.