The Status Quo Below The Headlines

Today’s updates on nonfarm payrolls and personal income & spending beat expectations, but when you look beyond the monthly comparisons it’s not obvious that the numbers have broken free of their recent bias for slow-to-modest growth. But let’s start with the crowd’s standard obsession: headline data, which is to say the month-over-month comparisons. Private-sector payrolls increased by substantially more than expectations, rising 212,000 in October, or nearly double the consensus forecast. Meantime, personal income in September jumped 0.5%, a sizable margin over the 0.3% prediction by economists overall. Personal consumption expenditures, however, fell in line with the consensus view and advanced by a tepid 0.2%. On the surface, two healthy upside surprises and one decent gain look like a big win and perhaps a game-changing day if you were expecting darker data. But as we’ll see, putting today’s numbers in perspective suggests that nothing much has changed.

Let’s begin with payrolls. As the first chart shows, the year-over-year change in private-sector employment continued to increase at 2.1% last month, or roughly at the pace we’ve seen in recent months. That’s a respectable gain, but it’s not likely to change the slow-growth scenario for the labor market. Indeed, private payrolls have been advancing within a 1.9%-to-2.1% band of annual growth for more than a year and we’re still stuck with a lackluster labor market. Maybe today’s payrolls report is the start of something better—last month’s 212,000 increase in private-sector jobs is the best monthly gain since February. But for the moment there’s no change in the year-over-year trend, which suggests caution in expecting a radical shift for the better in the immediate future.

As for spending and income, the trends look a bit less encouraging vs. payrolls, especially with private-sector wages. Disposable personal income’s (DPI) annual gain in September is virtually unchanged from the previous report: +2.9% vs. a year ago. That beats a decline, but as the next chart shows, the slow retreat in DPI’s annual growth rate over the last several years is worrisome. On that note, consider that private-sector wage growth—the dominant source of income—turned down rather sharply in September in terms of its annual pace, rising 3.7% for the year, which is the slowest gain since April. Meanwhile, personal consumption expenditures dipped to a 2.7% year-over-year rate in September, also the slowest since April.

Overall, the big-picture view suggest that private payrolls continue to expand at a moderate pace, in line with what we’ve seen in recent history. A similar narrative applies to spending and income, albeit with some troubling weakness that create macro problems in the near-term future without a stronger round of growth in the months ahead.
Sure, today’s reports are a relief, but only in relative terms vs. a big downside surprise. Let’s not confuse dodging a bullet (again) with sustainable growth that’s substantially stronger than what we’ve seen lately. Yes, that may be coming, but it’s hard to look at today’s numbers in proper perspective and conclude that we’ve turned a corner in some significant degree. Remember, monthly comparisons are notoriously unreliable. We all look at them, but it’s the macro equivalent of candy. It’s a nice treat, but if you gorge yourself you may have a rough day tomorrow.