Payrolls bounced back strongly from last month, up 261,000, while the unemployment rate ticked down to 4.1%, its lowest rate since 2000. However, the jobless rate fell for the “wrong” reason: a sharp decline in labor force participation. Other labor market indicators suggest a mixed report, with a tightening job market, a solid trend in payroll gains, but stagnant wage growth. Though convention wisdom is that the US labor market is at full employment, I’d say that’s wrong (see last figure). We’re getting there, for sure, but based on wage and inflation trends, we’re not there yet.

Revisions to the prior two months added 90,000 to the payroll count; September’s hurricane-induced loss of 33,000 was revised up to an 18,000 gain. Still, October’s spike is partially a rebound from the low September number and much as we discounted that month’s result, so must we discount October’s bounce-back. Note, for example, that employment in food services and drinking places–a weather-sensitive industry–increased by 89,000 in October after falling by 98,000 in September.

To squeeze out the impact of these outliers and gets a better sense of the underlying trend, monthly smoother takes this approach as well, showing average gains over 3, 6, and 12 month periods. The fact that all the bars are around the same height shows that payroll gains are averaging around 160K-170K per month, a growth rate that is certainly fast enough to continue to legitimately drive down the unemployment rate.

However, as noted, last months decline in unemployment was due to 765,000 people leaving the labor market, which drove the participation rate down by 0.4 of a percentage point, a large monthly loss. To be sure, this is a noisy number and could be quickly reversed. In fact, I would expect a reversal as such exits are hard to explain in a job market that is clearly tightening. Also, the decline could be concentrated in older, retirement-age persons, though the participation rate for prime-age workers–25-54–also fell in Oct, from 81.8% to 81.6%. At any rate, these changes imply that at least part of the decline in unemployment was due to labor force exits.

The underemployment also fell sharply, from 8.3% to 7.9%, its lowest rate in this expansion. Part of this decline is also due to the lower labor force, but it is also due to a sharp monthly fall in the number of involuntary part-timers (those who’d prefer full-time work), another sign of tightening.

That said, a key signal that the job market is not yet at full employment comes from the wage trends shown below. As noted in my report from a month ago, wage growth was thought to be slightly biased up in September by the hurricanes, as lower-wage workers temporarily left the sample. For October, as you can see at the end of the figure, there was a negative bounce-back, so here again, trend extraction is essential. The figures below show yearly wage growth for all private sector workers and for blue-collar and non-managerial workers, with a 6-month moving average to pick up that trend.

They both show that, at least in these wage series, nominal wage growth has stalled out at around 2.5%. Other series show a bit more acceleration, but among those of us who closely track such trends, it is pretty widely agreed that there is less wage acceleration than we’d expect in what otherwise looks like a pretty high-pressure job market.

As the next figure shows, unemployment is notably below the Federal Reserve’s estimate of the “natural rate”–the lowest rate consistent with stable prices–but not only has there been little in nominal wage acceleration (the yellow line), but core inflation is DEcelerating, and it remains well below the Fed’s 2% target. While I’m sympathetic to cautious Fed economists who worry about “de-anchored inflationary expectations”–though it’s worth noting that neither realized nor expected inflation give much support to such worries–we cannot write off these trends with hand waves about how spiraling prices must be around the next corner. We must be data driven, and the data are clearly suggesting that despite very low unemployment, we’re not yet at full employment. That means that even nine years into the expansion, too many workers are not benefiting as much as they should be from the growth they’re helping to generate, and this is problem that policy makers cannot ignore.