INDICATOR: September Employment Report
KEY DATA: Payrolls: 148,000; Private Sector: 126,000; Unemployment Rate: 7.2%
IN A NUTSHELL: "Sluggish payroll growth is indicating the economy was not picking up any steam even before the shutdown."
WHAT IT MEANS: Finally, the September jobs numbers are out and they are decidedly mixed. The good news was the unemployment rate dropped to its lowest level since November 2008, when the financial sector collapsed. The labor force and the number of people employed rose, the participation rate was constant and the number unemployed declined. All those changes are in the right direction so this number cannot be attacked as being due to some factors that few understand. The number of people working part-time fell by 164,000. These numbers are wildly variable month-to-month but looking over the year, people working part-time for economic reasons (not because they wanted part-time jobs) dropped by nearly 700,000 workers or 8.1%. So much for the story that all the jobs being created are part-timers. On the payrolls, side, though, the increase was less than stellar and indeed was well below expectations. Over the past three months, total job gains have averaged a very disappointing 140,000 while the private sector added only 129,000 per month. It's hard to get good growth with that level of increase. State and local governments added 28,000 workers as their budgets are getting back to normal. The federal government cut its workforce and that was before the shutdown. In the private sector, weakness in the hospitality and finance sectors restrained broad-based but lackluster gains in the rest of the economy. What I watch closely, in addition to the number of jobs is wages. Both hourly and weekly wages rose only 0.1% over the month and have increased by about 2.1% over the year. That is a little faster than inflation but doesn't allow for much growth in spending power. Earnings need to rise a lot faster before consumption and growth can accelerate.
MARKETS AND FED POLICY IMPLICATIONS: It was nice to finally get the September employment report but the numbers were not a pleasant sight. The economy was already growing at a lackluster pace but Washington decided that it was fun to slow things down even more. At this pace of job and wage gains, no matter what level the unemployment rate hits, the Fed is not going to start tapering. With no fiscal agreement, it is the right move for the Fed to simply keep leaning against the wind (i.e., blowhards). As for the markets, investors have to be concerned that last quarter's earnings will not be duplicated. Meanwhile, with the Fed back in the QE business, bonds are likely to look good again. The October employment report will be out on October 8th not the 1st, as originally expected. How much the shut down affected job growth or data collection, is not clear. We may not get a true picture of the state of the labor market for several months.