Instant Analysis: Employment report for September

Scott Anderson
Posted by Scott Anderson
Chief Economist

The September nonfarm payroll growth came in a bit light compared to our and analysts’ expectations — 156K on the month.  However, August job growth was revised higher to 167K from an initial 151K print.

Four businesspeople talking in a busy plaza of a major international city.We believe any monthly gain above 150K is a good number and won’t force the FOMC to deviate from its plan to raise rates again before the end of the year.  We maintain our December Fed rate hike forecast given these Goldilocks figures (not too hot and not too cold).

Labor market still getting its mojo back

Private payroll growth improved in September to 167K from 144K, suggesting the labor market did get some of its mojo back last month.

The U.S. unemployment rate increased to 5.0% from 4.9% on strong increases in both household employment (354K) and labor force growth.  Four hundred and forty-four thousand folks entered the labor force last month, according to the Labor Department.  This bolsters Yellen’s view that there is still excess slack in the labor market that is still getting absorbed.  Discouraged workers do appear to be re-entering the labor market today.  The labor force participation rate increased to 62.9% from 62.8% last month.

Worker income growth improved as well in September.  Average hourly earnings increased 0.2%, with year-on-year gains improving to 2.6% from 2.4% last month.  Average hours worked also improved to 34.4 from 34.3 in August.

Job growth picked up last month in construction (23K) and business services (67K).  Job growth slowed in trade (24K), finance (6K), education and health (29K), leisure and hospitality (15K).  Job losses occurred in manufacturing (-13K) and government (-11K).

Keeping the FOMC on track for December?

Bottom line: the September payroll report was a decent report that shows moderate job growth continues.  In many ways it was a Goldilocks number – not too hot or not too cold – for the market and the Fed.  The number was weak enough and labor force gains strong enough to take some of the air out of the hawks’ fears that the FOMC is behind the curve in raising rates.  At the same time, it keeps the FOMC on track for another December rate move.

The improvement in average hourly earnings growth and hours worked is particularly encouraging, suggesting that the average worker is finally benefiting from the economic expansion and tightening labor market.  Consumer spending is expected to continue to drive growth over the near term.

The 10-Year Treasury yield has been volatile this morning, but is currently less than a basis point lower at 1.737%. U.S. stock futures are mixed near the unchanged level. WTI Crude Oil prices are still trading above $50 per barrel.  The U.S. dollar is weaker against major currencies.

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