skip to Main Content

First Cut: September employment data shows modest payroll growth, softer rises in earnings, and a near 50-year low in unemployment

Nonfarm payrolls were up 136,000 in September, not far below market expectations. Adding to the increase was a net upward revision of 45,000 in the prior two months. On the surface, this is solid payrolls growth. However, it cannot be ignored that private payrolls were up 114,000 and that government contributed 22,000 to the increase, suggesting that the private sector is doing less to support the economy than it had been. Also, for the first time since October 2017, average hourly earnings did not see an increase. The hourly rate was virtually flat at $28.09 in September from $28.10 in August. Year-over-year, average hourly earnings rose 2.9%, the slowest since up 2.8% in July 2018. The workweek was unchanged at 34.4 hours. The report cannot be characterized as weak in light of the decline in the unemployment rate, but there are warning signs here that the private sector isn’t adding jobs outside of a few narrow sectors and workers are seeing less competitive wages and benefits.

Among the sectors that bear watching are manufacturing which fell 2,000 in September. Survey data for the factory sector suggest that hiring is moribund. The retail sector continued its contraction with a decline of 11,000 in September. Temporary help had a gain of 10,000 and was up for a second month in a row. Some businesses may be switching to hiring temps rather than permanent workers until it is clear whether the present slower economic activity is going to slide into recession or not.

The unemployment rate sank to 3.5% in September from 3.7% in August (unrounded 3.517% after 3.687%) and was the lowest since 3.5% in December 1969. The almost 50-year low was powered by a sharp rise in the number of employed (up 391,000) and a decline in the number of unemployed (down 275,000).  Some of this is attributable to a rebound after softer conditions in the prior month. The U6 unemployment rate was down three-tenths to 6.9% in September, the lowest since 6.9% in December 2000. If there is slack in the labor market, it is hard to find here. Nonetheless, this may be a one-off and the rate will rise again next month.

The number of part-time workers for economic reasons was down 31,000 to 4.350 million, job losers were down 304,000 to 2.572 million, job leavers were up 59,000 to 840,000, and new entrants to the workforce were up 103,000 to 677,000. These suggest that workers entering or reentering the labor market, or seeking new employment can be confident of finding work.

Fed policymakers could have trouble finding evidence here for a reason to cut rates again in the context of the dual mandate. To all appearances the labor market continued to add jobs at a pace able to absorb new entrants and maintain the present level of employment. If the inflation data later this month suggest that price stability is nudging back to the Fed’s 2% objective, it will be even harder to make the case. That leaves it up to the other economic data to counsel that more accommodation is needed to sustain the expansion. This situation has created some rifts between policymakers that the September employment numbers are not going to help reconcile.

Back To Top