Based on the employment report through October, the
labor force grew 1.3% measured yr/yr. That represents
slightly faster growth than in the recent past, but it
is rather slow. This modest growth limits US economic
potential, and with more Boomers set to retire in the
years ahead, growth of the labor force will remain
constrained. Importantly, the slow growth of the labor
force also takes pressure off the Fed to provide economic
stimulus and leaves it more leeway to attend to inflation.
Growth of civilian employment has accelerated in recent
months, and was up 1.9% yr/yr through October. the service
sectors have strengthened, as falling fuel costs have led
to stronger bookings, particularly in the growing export
sector.
With employment outpacing the growth of the labor force, the
unemployment rate has dropped to 4.4%. This is low, and signifies
a tighter labor market. Because hiring has picked up nationwide
as the economy in total has slowed, productivity growth has slipped
and unit labor costs have accelerated. Corporate profits have
still progressed nicely, because pricing power has improved.
Profit margins may not fare as well in the months ahead, because
inflation pressures have receded and pricing power will follow
suit. On the plus side, wages are rising around 4% yr/yr, and
with less inflation pressure, basic consumer purchasing power
is improving quickly. In all, wage earners can probably sustain
real economic growth of about 3%. That represents the strongest
reading in a number of months.
Note that I have referred to employment data from the BLS monthly
survey of households in preference to the payroll data. The
former is far more fresh and tends to lead the latter.
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