September Jobs Report
….134,000 new jobs in September; 3.7% unemployment rate. Wages flat. Variations by geography, race, gender, age, and education.
Financial Review by Sinclair Noe for 10-05-2018
DOW – 180 = 26,447
SPX – 16 = 2885
NAS – 91 = 7788
RUT – 14 = 1632
10 Y + .03 = 3.22%
OIL – .04 = 74.29
GOLD + 3.00 = 1203.70
The economy added 134,000 new jobs in September. The unemployment rate dropped to 3.7%, the lowest level since December 1969. The change in total nonfarm payroll employment for July was revised up from +147,000 to +165,000, and the change for August was revised up from +201,000 to +270,000. Employment gains for August and July were revised up by a combined 87,000. And the economy has gained an average of 208,000 jobs each month in 2018.
The 134,000 jobs gained in September was below estimates for about 170,000 to 180,000. And we had encouraging economic reports earlier in the week from ADP showing private payrolls increasing at 230,000 pace, plus the ISM reports showed increases in their employment indexes. There is little evidence that those mildly disappointing figures suggest a broader slowdown. The September Jobs report extended the current run of monthly job growth to eight straight years, double the previous record. The current economic expansion is already one of the longest on record, and there is no sign that it is losing steam. Economic output last quarter increased at its fastest pace in four years, and the current quarter looks strong as well. Yields on United States government bonds have risen sharply in recent days, an indication that investors expect faster growth, and more inflation, in coming years.
There is a chance that the September report has statistical noise, and perhaps does not accurately reflect the labor market – and the reason for the aberration is Hurricane Florence might have weighed on job growth in the region. We saw something similar with hurricanes at this time last year; after Harvey and Irma, job growth recovered in the final months of 2017. The number of workers across the country who stayed home because of weather increased by 276,000 last month on a non-seasonally adjusted basis, compared with a median 7,000 rise over the past 10 September jobs report. The storm likely affected too limited of an area and struck too late during the week of Labor’s survey to have a meaningful impact. Workers are counted as employed as long as they show up for any part of their pay period. Also, the storm might have muddied measures of earnings and working hours, at least in some industries.
Average hourly wages rose 0.3% in September to $27.24, but wage increases over the past 12 months slowed to 2.8% from 2.9%. Average weekly hours of all private employees was flat at 34.5 hours. Average weekly hours of all private service-providing employees was flat at 33.3 hours. Average weekly hours of manufacturers fell 0.1 hour at 38.9 hours.
The labor force participation rate — the share of adults who are working or actively looking for work — was unchanged in September and has been more or less flat for several years. The Labor Force Participation Rate was unchanged in September at 62.7%. The strong labor market has not been strong enough to provide jobs for the long term unemployed; 1.38 million workers who have been unemployed for more than 26 weeks and still want a job. This was up from 1.33 million in August.
The U6 unemployment rate increased 0.1% to 7.5%. Involuntary Part-Time Work increased +263,000.U6 includes unemployed plus underutilized, or people working part-time but they would like full-time jobs, plus marginally attached workers (which is a way of saying people who are out of work and might not otherwise be counted even though they might like to find work.) The strong job market is not yet pulling workers in off the sidelines, at least not enough to offset the exodus of retiring baby boomers.
The economy gained 23,000 construction jobs and 18,000 manufacturing jobs, maybe a sign that businesses continue to expand their operations. The biggest gainer in September was so-called “professional and business services” employment, which grew by 54,000 and could be another indication of a thriving employment picture despite the relatively weak overall headline number in the report. Health care added 30,000; transportation and warehousing, 24,000. Leisure and hospitality lost about 17,000 jobs, suggesting Hurricane Florence might have been a factor, and the retail sector lost 20,000. Government added 13,000.
It is important to remember that this is a national jobs report and results vary from town to town. Some parts of the country are seeing much faster labor force growth than others, both from young people entering the workforce and from people moving in from out of state. A growing labor force means more workers are competing for the same jobs, so faster job growth is needed to keep unemployment low. Generally, a growing labor force and low unemployment rate is a sign that a local economy is healthy and job growth is strong. When the economy is weak, there aren’t enough new jobs for an expanding workforce, so the jobless rate goes up. The metro area with the tightest labor market is Ames, Iowa with just 1.7% unemployment; followed by Idaho Falls, Idaho. The metro area with the worst job market is Yuma, Arizona with 22% unemployment.
The labor market data show large inequities by race, ethnicity, education and gender. A smaller share of African-Americans, for example, are employed – 58.7% — compared to 60.6% of whites. And, while a larger share of Hispanics are employed than is the case for whites, their unemployment rate is also higher with 4.5% compared to 3.3% for whites. Moreover, the employed share of women is much lower than that of men. Furthermore, employment opportunities go up with education. The employed share of people with at least a bachelor’s degree was 72.1% in September 2018, while the employed share of people without a high school degree was only 43.5% at the same time.
Wage gaps further exacerbate the differences in job opportunities by race, ethnicity, gender and education. African-Americans had median usually weekly earnings of $683 and Hispanics had earnings of $674, while whites earned $907 in the second quarter of 2018. Moreover, full-time employed women had median usual weekly earnings of only $779 at the same time, compared to $962 for men. And, those without a high school degree typically earned $554 when working full-time, while those with at least a bachelor’s degree earned $1,310 in the second quarter of 2018.
But, gaps in employment opportunities and wages are not the end of the story on inequality. African-Americans and those with less education tend to be out of jobs longer, when they are unemployed, than is the case for whites and those with more education. In September 2018, for example, the average length of unemployment for African-Americans was 30.3 weeks compared to 24.2 weeks for whites.
On its face, today’s jobs report was largely disappointing, with just 134,000 jobs added. But there are several mitigating factors. Hurricane Florence likely reduced employment in the Carolinas. And Labor has routinely underestimated payroll gains in September, only to subsequently revised them higher. Also, job gains for July and August were revised up by 87,000, more than offsetting September’s weak performance. As a result, the Fed is likely to shrug off the disappointing jobs total and raise its key rate in December for a fourth time this year. Keep in mind that the unemployment rate is at a 48-year low. Also consider that in 1969 – the last time the unemployment rate was this low – consumer prices rose 5.9 percent that year. Currently, that measure is 2.7 percent. In many ways, the economy is stronger now than then. The 3.7% unemployment rate is much lower than the 4.5% rate that most folks thought represented full employment, and yet we haven’t seen a significant bounce in wages. The truth is that we don’t know how low unemployment can go without overheating the economy. Earlier this week, Fed chair Jerome Powell said the U.S. economy is “a long way from neutral.” Maybe, or maybe we are finally going to see wage gains heat up. Amazon lit the match this week, announcing it would raise the company wide minimum wage to $15 per hour, more than double the federal minimum wage. Attracting and retaining quality employees is important, especially for a retailer heading into a busy holiday season. We may still be a long way from wage push inflation, but the labor market is getting a bit tighter.
Stocks fell sharply today. At one point, earlier in the session the Dow was down 325 points. The S&P 500 broke below its 50-day moving average for the first time since July 5 before snapping back above the closely watched technical level. Tech was the worst-performing sector on Friday, dropping more than 2 percent. Nvidia and Analog Devices were among the worst-performing stocks in the sector, falling at least 4 percent each. The Nasdaq notched its worst week since March. For the week, the S&P 500 was down 1%, the Nasdaq was down 3.2%, and the Dow was down just a fraction, despite hitting record highs earlier in the week.
The 10-year note yield rose to 3.24 percent and hit a fresh 2011 high and closed at 3.22%, while the two-year note yields advanced to 2.897 percent. The movement in bonds this week has been alarming, with the 10-year note moving over 16 basis points from last Friday’s close.