U.S. non-farm payrolls disappointed in September, with 134k new positions created. However, the September letdown is mitigated by a net upward revision of 87k jobs to July and August, and the likely impact of sectors affected by Hurricane Florence. The BLS indicated that Florence affected parts of the East Coast during the reference period for both the household and establishment surveys, but that response rates were within normal ranges. However, there was likely a dampening impact in certain sectors.
The unemployment rate dropped two ticks to 3.7%, a new cycle low. Indeed, you have to go all the way back to 1969 to find a lower unemployment rate. The overall labor force participation rate remained unchanged at 62.7%.
Turning to the industry detail, a slowdown in services sector hiring was behind the September softness. Services hiring cooled to 75k new positions, down from 217k in August. Several services sectors saw a weaker pace of hiring including retail trade (-20k), education & health (+18k) and leisure and hospitality (-17k). The BLS noted that some of the weakness in the leisure and hospitality sector may reflect the impact of Florence.
Meanwhile, hiring in the goods-producing sector accelerated in September, gaining 46K new jobs. Both construction (+23k) and manufacturing (+18k) posted solid growth in September.
Average hourly earnings rose 0.3% on the month, a decent follow-through on the 0.3% jump in August. Unfavorable base effects meant the year-on-year growth in wages dipped to 2.8% (from 2.9%), but the annualized pace over the past three months is a much sturdier 3.4%.
Key Implications
Meh. Every so often you get a below-trend month in hiring, and this is more common in September. We will reserve judgement until the next report before worrying about a slowdown in hiring.
In any case, the U.S. labor market remains strong. Unemployment is the lowest it’s been in nearly 50 years, and wage gains are making headway. Going forward, employers will find it increasingly difficult to find workers to fill positions, muting monthly payroll gains, and we would expect to see a natural slowing in monthly job gains.
There is little doubt that the full employment half of the Fed’s dual mandate is right on track. And today’s employment report is consistent with another hike in December. It has long been the inflation side of the scale that has caused head scratching among FOMC members. Inflation is on target for now, and the question is how much pressure is bubbling beneath the surface. So far there isn’t a ton of evidence for a breakout in price pressures. That underpins our expectation that the Fed can continue its gradual pace of a hike a quarter over the next year.
