Orlando's Outlook: Jobless rate surprisingly plunges
Bottom Line In the penultimate employment report before the presidential election on Nov. 6, the Bureau of Labor Statistics (BLS) reported this morning that September’s household survey surprisingly added almost 900,000 jobs, soaring to its highest level in nearly 30 years, which dropped the rate of unemployment to a cycle low of 7.8%, marking the first time that this rate has been below 8.0% since President Obama took office. While this banner headline will undoubtedly make the front page of every newspaper in America tomorrow morning, the rest of the jobs report was a mixed bag. On the negative side of the ledger, private payrolls were weaker than expected and manufacturing lost jobs for the second consecutive month. But the good news is that nonfarm and government payrolls were revised higher over the past two months, and wages, hours worked and the labor-force participation rate ticked higher. All in, it appears that the labor market continues to heal at a moderate pace.
Household survey soars This is the single biggest story of the September labor report, as the household survey surged by 873,000 jobs last month, compared with outright job losses of 119,000 jobs in August and 195,000 in July. Admittedly a volatile series, last month’s gain was the largest absolute rise since the household survey gained 991,000 jobs in January 2003, and the BLS reports that it is the largest increase since 1983, when excluding the annual Census Bureau population adjustments. So, how did the household survey suddenly swing sequentially by nearly one million jobs from August to September? There are two main contributors. First, 187,000 of these are government jobs. Second, 582,000 of these jobs are part-time positions due to slack business conditions. Importantly, our research friends at RDQ Economics point out that this is the third consecutive September in which the household survey has surged, and that this increase was largely reversed in October 2010 and 2011. Because the household survey is an important leading employment indicator for both nonfarm and private payroll growth, we’ll be watching the October revisions closely, to see if this seasonal factor reverses the job-creating strength—and the plunge in the unemployment rate—embedded in the September report.
Unemployment plunges, U-6 flat This is the element of September’s labor report onto which the media will latch, as unemployment plummeted to 7.8% from 8.1% in August, while the labor impairment (U-6) rate—also known as the “total” rate of unemployment, because it more broadly includes discouraged workers and the underemployed—held steady at 14.7%. The improvement is a function of the month-over-month swing in household employment from a loss of 119,000 jobs in August to a gain of 873,000 jobs in September, and a sequential swing in the civilian labor force from a loss of 368,000 workers in August to a gain of 418,000 workers in September. This at least temporarily breaks the string of a record 43 consecutive months since February 2009 in which the unemployment rate exceeded 8.0%, which was the longest such stretch of joblessness since government record-keeping began in 1947. In addition, the labor force participation rate ticked up to 63.6% in September, which is just above a 31-year cycle low.
Nonfarm payrolls in line September rose by 114,000 jobs, which was essentially at consensus estimates for a gain of 115,000 jobs. Importantly, the BLS revised July and August results up by a combined 86,000 jobs. July’s preliminary gain of 163,000 jobs, which was revised down to a gain of 141,000 last month, was revised sharply higher to a final gain of 181,000 jobs. August’s preliminary gain of 96,000 nonfarm jobs was also revised up to a gain of 142,000 jobs. So the average monthly employment gain for the third quarter is 146,000, which is well above the tepid second-quarter average of only 67,000 jobs, although it remains well below the more robust first-quarter pace of 226,000 jobs.
Private payrolls miss September rose by only 104,000, which was well below the consensus forecast for a gain of 130,000 jobs, while the BLS collectively revised July and August down by 5,000 jobs. July’s preliminary increase of 172,000 jobs, which was revised down to a gain of 162,000 last month, was revised up a tick to a final gain of 163,000 jobs. August’s preliminary increase of 103,000 jobs was revised down to a gain of 97,000 jobs. So while the third-quarter average monthly gain of 121,000 private jobs is better than the second-quarter average of only 88,000 jobs, it remains well below the much stronger first-quarter average of 226,000 jobs.
Government hiring turns sharply higher The addition of 10,000 federal, state and local government jobs accounted for the difference between private and nonfarm payroll gains in September. But not only did government hiring turn positive for what appeared to be only the second time this year, the BLS went back and revised government hiring positive by a combined 91,000 jobs in July and August. As a result of those surprising revisions, government payrolls are now positive for three consecutive months for the first time since the Census hiring in 2010. July’s loss of 21,000 jobs was revised up to a final gain of 18,000 jobs, while August’s loss of 7,000 jobs was revised sharply higher to a gain of 45,000 jobs. That compares with job losses of 18,000 in June, 29,000 in May, 17,000 in April and 4,000 in March. The government had actually added 5,000 jobs in February, after a modest loss of 2,000 jobs in January. Our research friends at UBS point out that the strength in public-sector hiring was largely in local government education, which suggests that teachers were hired back at the start of the school year, now that school districts have gotten their budgets back in balance.
Manufacturing stays negative, construction remains weak Not surprisingly, manufacturing employment shrank a second consecutive month in September, losing 16,000 jobs after losing a downwardly revised 22,000 jobs in August. Manufacturing had gained 18,000 jobs in July, 7,000 in June, 13,000 in May and 10,000 in April. In the first-quarter, however, manufacturing averaged the addition of 41,000 jobs per month. Construction added 5,000 jobs in September, compared with a modest 1,000 jobs in August, 3,000 in July, and 4,000 jobs in June. That compares with job losses of 32,000 in May, 7,000 in April, 14,000 in March, and 1,000 in February. Back in January and December, however, construction had enjoyed solid gains of 18,000 and 26,000 jobs, respectively.
Temps turn negative Temporary help—another important leading indicator of employment growth—lost 2,000 jobs in September after breaking even in August and rising the four previous months (13,000 jobs added in July, 18,000 in June, 15,000 in May and 21,000 in April). Temporary hiring had actually lost 13,000 jobs in March, but that compares with much stronger gains of 50,000 jobs in February and 36,000 jobs in January.
Wages and private hours worked improve Average hourly earnings in September leapt by a stronger-than-expected 0.3%, compared with no change in August. That nudges year-over-year wage gains up to 1.8% last month, a tick better than in August. The average private workweek for all employees ticked up to 34.5 hours in September, which was a tick higher than in August. This is encouraging, because this increase of 0.1 hour worked in September is the equivalent of adding an estimated 400,000 jobs to the economy.
ADP surprisingly strong before revisions This important proxy for private payroll growth was stronger than expected with a gain of 162,000 jobs in September, compared with consensus estimates for a gain of 140,000 jobs. But that beat was wiped out by downward revisions of 29,000 jobs in the two previous months combined. The preliminary gain of 201,000 jobs in August was revised down to a gain of 189,000 jobs, while July was revised down from a gain of 173,000 jobs to a final gain of 156,000 jobs. That compares with gains of 172,000 jobs in June, 131,000 jobs in May and 112,000 in April, and the much stronger average gain of 205,000 jobs during the first quarter. ADP reported that in September, 81,000 jobs came from small firms, compared with 94,000 jobs in August; 64,000 jobs came from mid-sized companies, versus 79,000 in August; and 17,000 jobs came from larger companies, compared with 16,000 in August. While this remains consistent with the outsized pace of job growth we’ve seen among small- and mid-sized businesses, the engines of job creation in the U.S., the pace of job creation has slowed sequentially. ADP remains an important leading employment indicator for us because the government’s official nonfarm establishment survey eventually captures this outsized trend in job creation from small- and mid-sized companies, but with a lag of several months.
Initial weekly jobless claims flattish Another important leading employment and economic indicator, weekly claims posted 367,000 for the week ended Sept. 29, which is stuck in the middle of the recent cycle peak of 392,000 for the week ended June 16 and the trough at 352,000 the week ended July 7. The smoother four-week moving average held steady at 375,000.
