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Jobs 134K, Unemployment 3.7%: When "Bad News" Is Good

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Friday, October 5, 2018

September payrolls from the monthly survey conducted by the U.S. Bureau of Labor Statistics (BLS) has been released prior to the opening bell this Friday, and, on the headline numbers, at least, the numbers are mixed: 134K new jobs were created last month, far lower than the 160-190K analysts were expecting, while the Unemployment Rate fell to a 49-year low at 3.7%.

Scratch the surface, however, and you get to the real story: revisions to the previous two months in the BLS survey. July totals ratcheted up from 147K originally announced to 165K this morning. August was even more impressive — 270K jobs in that month was a big upward revision from the already-impressive 201K initially reported. Average out the 3-month totals and we’re right at 190K, exactly what the more optimistic of labor market analysts had been expecting.

The news is actually even better than that. Consider Hurricane Florence having made landfall on the coastal Carolinas last month — these types of events typically wreak havoc on economic metrics like monthly jobs numbers. Although this morning’s report indicates that survey responses had come in the “normal” range, some weather-related affects had been anticipated by at least some of those issuing jobs estimates. Weather affects to jobs totals also tend to be very temporary, meaning once flood recovery in the Carolinas is complete, we expect jobs growth to fill back in the void.

Retail and Leisure/Hospitality both took hits for the month — down 20K and 17K, respectively — which also points to weather-related disruptions. Elsewhere, Professional/Business Services rose a robust 54K, Healthcare was up 26K and Manufacturing +18K.

Average Hourly Earnings rose 0.3%, or 8 cents per hour, for the month. This brings year-over-year wage growth to 2.8%, which is 10 basis points weaker than this same read a month ago. The Labor Force Participation Rate, at 62.7%, might be the most stubbornly frustrating read in today’s entire report: despite half-century lows in unemployment and jobless claims, even this terrific labor market can’t drag even 2/3 of the available workforce to draw a paycheck. The U-6, aka “real unemployment,” ticked up from another long-term low 7.4% to 7.5% today.

Even though these stellar overall jobs numbers — including yesterday’s jobless claims and Wednesday’s ADP payroll report of 230K new jobs for September — ought to be making headlines across the country, stock market indexes remain hampered by bond yield realities, which look to be tightening up, especially on the 10-year bill: scooting up past 3.2% yesterday and sending the Dow down 200 points and the Nasdaq down 1.8%, markets are now flat following the latest BLS report. The 10-year hasn’t screamed further upward since the news, but is inching slowly toward 3.3% at this hour.

For future reference in re monthly jobs numbers, higher rates may start to have an effect on those industries which have grown strong in the low-rate environment: Construction, Housing, Durable Goods, etc. will all begin to feel the strain of higher bank lending costs as these rates continue upward. The Fed currently has interest rates between 2.00-2.25%, with another 25 basis-point hike expected at its December meeting.

Mark Vickery
Senior Editor

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