WHAT IT MEANS:
- INDICATOR: September Employment Report
- KEY DATA: Payrolls: +142,000; Revisions: -59,000; Manufacturing: -9,000; Government: +24,000; Unemployment Rate: 5.1% (unchanged); Participation Rate: -0.2 percentage point; Hourly Earnings: -$0.01
- IN A NUTSHELL: “Is the jobs machine running out of gas?”
Most economists thought the September jobs report would be pretty decent.
Boy, were we wrong.
Instead, it was ugly. Not only were the job gains well below expectations, but the previously reported July and August increases were revised downward.
In the third quarter, hiring averaged only 167,000 per month. That is the weakest three-month average in 2½ years.
And the details were just as disappointing. The problems in the oil patch and slowing exports led to layoffs in the manufacturing and mining sectors.
In September, that reduced payrolls by 21,000 after a 40,000 decline in August. Still, the rest of the economy didn’t hire at a breakneck pace.
There were decent increases in healthcare, retail, entertainment, residential construction and restaurants, which are all consumer-related sectors. Professional and business services also were up solidly.
But finance, wholesale trade, transportation were weak. That was odd since you would think these sectors would be supporting what looks like solid consumer activity.
Public sector payrolls were up sharply and we shouldn’t count on that happening too often. A drop in the workweek, a slowdown in overtime hours and a slight decline in the average wage all added to the impression that September was not a good month for the labor market.
It was nice that the unemployment rate remained at 5.1, but the details were not what you would like to see. The labor force fell sharply and that is hardly a sign of a robust labor market. These numbers are extremely volatile but this drop was large nonetheless. With the labor force down, it was not surprising that the participation rate also fell.
MARKETS AND FED POLICY IMPLICATIONS:
Why have businesses reduced hiring activity? This report was a downer even if you add back the job losses caused by the weakness in the oil-patch and exports. But manufacturing and exports don’t make up a huge portion of payrolls.
Meanwhile, domestic demand seems to be strong. September vehicle sales will exceed the 18 million units annualized mark for the first time in over a decade.
Housing seems solid and the summer tourism season looks to have been strong.
Consumers are spending, yet business confidence is sinking.
So we have a dichotomy: The U.S. consumer is carrying the load but firms are being cautious in their hiring.
Or at least that seems to be the case.
Another explanation is that companies are trying to hire but they are not finding workers with the desired skills who are willing to take the pay being offered. In other words, it is not an issue of demand but of supply.
Or, maybe, the numbers are just strange.
If you believe the oil-patch/export theory, it would be large firms who are doing the cutting.
But ADP had large firms doing most of the hiring in September. Also, the National Federal of Independent Businesses survey indicated that small firms are hiring near the pace we saw last year.
The Bureau of Labor Statistics may not be doing a good job capturing these hires. I just don’t know, but the strong consumer and soft hiring divergence is a conundrum.
And when you get conflicting indicators, the best policy is to simply wait and see, which is what the Fed will likely do.
So any chance of a hike in October is gone and unless the next two employment reports released before the December meeting reverse the impression created by the last two, we might not even get a hike in December, regardless of what the Fed Chair has been saying.
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