For the past few months, there have been concerns the U.S. labor market was beginning to slow down. By all standards, the labor market was still quite strong. But a caution that the monthly pace of job gains was gradually subsiding began to resonate across the financial markets. However, the Department of Labor’s October employment report triggered a collective sigh of relief on Wall Street.
In October, the economy added 128,000 new non-farm jobs, above the 90,000 the markets were expecting. The August and September monthly gains were also revised higher by a combined 95,000 jobs to 219,000 and 180,000, respectively. The national unemployment rate was reported at 3.6%, just above the 50-year low of 3.5% set in September. Annual wage growth remained at 3%, near a 10-year high. October was the 15th consecutive month of 3% or greater wage growth. Year-to-date, the economy is averaging a very healthy 167,000 new jobs per month.
The renewed assurance in America’s labor market has been a key driver in the recent surge in stock prices. On Thursday, the Dow Jones Industrial Average (DJIA) and S&P 500 all closed at new all-time highs. The tech-heavy NASDAQ matched its all-time high set on Tuesday. For the year, the DJIA has gained 18.6%, the S&P 500 23.1% and the NASDAQ 27.1%.
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The Department of Commerce recently released its latest Gross Domestic Product (GDP) report, which gave us our first glimpse of economic growth in the July-September third quarter. GDP is the total dollar-value of goods and services produced by a nation and is the primary measure of its economic health. In the third quarter, the economy grew at an annualized pace of 1.9%, slightly below the second-quarter rate of 2%. The past two quarters marked a sizable shift from the robust pace of growth from 2017 through the first quarter of 2019, when economic growth was as high as 3.1%.
But 68% of our nation’s economic growth is driven by consumer spending, which continues to charge ahead despite a very weak global economy and America’s trade disputes. So far, Americans continue to convert their job security and rising disposable income to sales at our nation’s check-out lines. A stronger labor market fuels that consumption even further.
The renewed optimism in the strength of the U.S. labor market has improved the short-term outlook for the economy. Admittedly, no one is expecting a sudden return to the high-octane growth rates of 2017-2018. The economy has currently returned to a more modest pace of economic growth, similar to the 2008-2016 average annual growth rate of just under 2%. October’s labor report does, however, indicate the current pullback in economic growth might be more short-lived than previously thought. And with that, the arguments of an impending recession have quickly been laid to rest.