When it comes to analyzing the labor market, we are focused on private-sector payroll growth in conjunction with real earnings growth (i.e. do more people have more spending power). For the month of October, private nonfarm payrolls decelerated to 1.7% y/y. Another way to monitor payroll growth is through various rates of change and over different lengths of time. For example, we can look at the y/y change in the m/m net change as well as the two-year growth rate for a high-level view into the path of payroll growth. The one-month net change in private nonfarm payrolls was 99,000, down 200,000 compared to October of last year. On a two-year basis, payroll growth has slowed sequentially since January to 5.9%. While the growth rate is elevated (fastest since June 1998, excluding the pandemic), the delta between October and September was -0.6%, the largest rate of change decline since April 2009, excluding the pandemic.
On the earnings side, nominal average weekly earnings for production and non-supervisory employees decelerated to 3.5% y/y, its slowest growth rate since March 2020. In terms of real spending power, inflation-adjusted average weekly earnings decelerated to 0.3% y/y in September (October data will be available next week). Taking a high-level view again, we have seen nominal earnings increase 22.5% since January 2020 while real earnings have increased 2.5% over the same period.
The sequential decelerations in y/y payroll growth, in conjunction with weak real earnings, points toward a weakening consumer spending setup. If economic activity were to accelerate from here, we would expect to see the y/y percent change in private nonfarm payrolls and real earnings to accelerate. We will continue to monitor developments on that front as new data becomes available.
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Senior Economic Analyst
Boyd Watterson Asset Management, LLC