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Highly Disappointing Nonfarm Payrolls in September

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The much-awaited September nonfarm payrolls number from the U.S. Bureau of Labor Statistics (BLS) came out with another disappointing headline: 194K, less than half the 500K analysts had been expecting. On the other hand, the Unemployment Rate dropped to 4.8% — the first 4-handle since the pandemic started and clearly a post-Covid low. So while the former number is a big disappointment, the latter brings us closer to full employment, nevertheless.

Revisions to the previous two months were in the right direction: from 235K originally reported for August now come in at 366K, and from 1.053 million reported in July up to 1.091 million today. Thus, we’ve made major strides in the U.S. labor force since the Great Reopening. In fact, nonfarm employment is up +17.4% since April 2020, though we remain down -5.0 million jobs since February 2020, the last month prior to the pandemic.

By industry, we saw what would have been considered fine monthly gains prior to the pandemic in areas like Leisure & Hospitality (74K), Professional & Business Services (+60K), Retail (+56K) and Transportation & Warehousing (+47K). The private sector alone brought in 317K according to today’s BLS number — lower than the 568K reported Wednesday in ADP’s (ADP - Free Report) private-sector payrolls for September. While we expected more from Leisure & Hospitality, this is not where we see the most trouble.

That, instead, are in public-facing services positions like Education & Healthcare. Public Education by itself lost -161K jobs last month, while Healthcare tallied -18K. This points in the direction of retiring/transitioning school teachers, but also administrators, janitors, even bus drivers. And with hostilities on the rise in many American communities regarding mask-wearing mandates and vaccination requirements, many skilled workers may simply be throwing in the towel.

Labor Force Participation did dip to 61.6% (only 10 basis points, but still), which supports this argument. From prime-age workforce (ages 25-54), we see a 4-month low 81.6%. This would also help bolster the early retirement/transitioning possibilities of today’s American labor market. Average Hourly Earnings did rise unexpectedly, to +0.6% from +0.4% expected and the downwardly revised +0.4% the previous month.

Markets have moved only slightly lower in pre-markets upon the release of this important monthly report. We expect a big 500K+ number may have set wheels in motion to a greater extent, but the market is not fretting much over this news. After all, this leaves room for jobs growth in future months we’d expected to see already. The Dow is +40 points, the S&P 500 is +8 and the Nasdaq is currently +48 points at this hour.

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