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Job Growth Numbers Still Uninspiring

November 4, 2016
Read Time: 0 min

Guest blog by Tom Cunningham, PhD

Tom_Cunningham.jpgIn terms of new jobs, October could fall under the heading of more of the same – hard to point to anything showing unusual strength, but nothing is contracting. A net gain of 161,000 jobs was below expectations and below the average of the last three months, although the previous two months were revised upward. Jobs were added in the usual sectors: health care, business services, and finance, insurance and real estate (FIRE). Other segments of the labor market showed slight increases or were flat.  No segment showed notable losses. 

The monthly household survey showed a headline unemployment rate, U3, declining 0.1 percentage point to 4.9 percent, about as expected. The broadest measure of labor underutilization, U6, which includes part-time workers looking for full-time work and workers on the sidelines, fell 0.2 percentage points to 9.5 percent. Workweek measures were also essentially unchanged. All in all, the U.S. economy is headed in the right direction if at an unexciting pace, which is unsurprising given the uncertainties faced by corporate decision-makers.

The jobs report stands somewhat in contrast to last week’s GDP report, which showed higher than expected growth in the third quarter. As a technical matter, the first estimate of quarterly GDP growth is subject to substantial revision because it is made with incomplete data in some key sectors. Nonetheless, the report prompted some analysts to contend it was sufficiently strong to warrant a Fed tightening this week. That did not happen, understandably as the Federal Open Market Committee (FOMC) meeting came but one week before elections. But the FOMC statement did indicate an interest rate move was likely in December.

There remains an unusually large amount of uncertainty about our economy among analysts and business leaders. By the time next month’s jobs report rolls around there should be more clarity, if only on specifically what should worry us.

Why should lenders be interested in the monthly unemployment reports?

As employment is a key factor in projecting loan portfolio performance, current employment statistics and longer term trends are likely to be primary considerations for most banks and credit unions as they incorporate forward-looking economic factors in their ALLL estimations under the CECL accounting standard.

About the Author

Tom Cunningham holds a Ph.D. in economics from Columbia University and was senior economist with the Federal Reserve Bank of Atlanta from 1985 to 2015. Mr. Cunningham serves as a consultant to MST in the creation and ongoing development of the MST Virtual Economist.

Under the new accounting standard, CECL, financial institutions will be required to consider economic factors in estimating their reserves. The MST Virtual Economist is an efficient, automated way to evaluate qualitative economic factors and project their impact on the institution’s loss rate, find new variables that impact the loss rate and determine the relevance of the economic factors you are already using to make qualitative adjustments. Click here for more information or to schedule a demonstration.


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