Any one economic report, like a single baseball game or the election du jour, is prone to deliver a surprise every once in a while, for good or ill. Today’s update on payrolls clearly falls into the category of positive surprise, and not a moment too soon.

Private nonfarm payrolls rose by a net 159,000 last month, the Labor Department reports. That’s the highest monthly gain since April. The autumn revival in the economy after the summer slump, in other words, rolls on. And with the Federal Reserve committed to an additional round of monetary stimulus, there’s no reason to think that the positive momentum of late is set to fade for the foreseeable future.

Today’s employment news clearly surprised economists. The consensus forecast underestimated October’s net payroll jump by roughly half. But today’s surprise really shouldn’t be a complete shock. In the September 26 edition of The Beta Investment Report, for instance, I considered the case for thinking that the risk of a new recession was in retreat. At the time, the idea that the economy had enough forward thrust to keep a new contraction at bay was a contrarian notion. Today, presumably, it’s an idea with broader appeal.
“This is very optimistic news and it comes in the wake of other fairly good news,” Nariman Behravesh, chief economist at IHS Inc. in Lexington, Massachusetts, told Blooomberg today. “It looks like the last month or so things have started to move upward again, and the momentum is hopefully building.”
Stephen Bronars, senior economist with Welch Consulting, says “it’s maybe an indication that we’re starting to turn the corner.” In an interview with CNNMoney, he opines that the October jump in payrolls is “a small step, but at least we’re going in the right direction. Things are definitely not going to get worse.”
Agreed, but let’s not overdo the celebrations just yet. Today’s jobs report is encouraging, or at least relative to the trend in recent months. There’s still a long way to go, however, and today’s numbers still leave plenty of reasons to wonder what comes next. Yes, a net gain of 159,000 in private nonfarm payrolls is the best news we’ve had in months. Unfortunately, the bulk of last month’s increase (about 97%) is concentrated in the services sector vs. the cyclically sensitive goods-producing industries. A job’s a job, of course, and more is certainly better. But until and if the employment gains spread more convincingly to the cyclical corners of the economy, there’s still an incentive to sleep with one eye open.
Perhaps that’s nitpicking. Having weathered so much discouraging economic news for so long, it’s easy to remain skeptical. All the more so when we’ve yet to see any convincing change for the better this year in new claims for jobless benefits, as yesterday’s weekly update reminds.
Keep in mind too that for all the favorable aura that accompanies today’s employment news, the pace of 159,000 new net jobs is still well below what’s needed just to keep pace with population growth. Another way to think of today’s news is that if the economy continued minting new jobs at a net 159,000 gain each month for the period ahead, it wouldn’t be enough to dismiss the outlook for sluggish growth.
Indeed, it’s no trivial matter to note that while the labor market added a net 159,000 jobs last month, the unemployment rate was unchanged at 9.6% in October. By almost any standard in modern American economic history, a 9.6% jobless rate is a sign of severe distress.
We’re a little bit less distressed today, and perhaps more of the same is on tap for the future. But a fair reading over the broad macro picture still suggests that the best-case scenario, which is still subject to change, is that a sluggish rebound is the path of least resistance. Today’s employment report lends more weight to that view. That’s both good news and bad. Weak growth is better than recession, but it’s still not good enough.