The employment situation is a set of labor market indicators. The unemployment rate measures the number of unemployed as a percentage of the labor force. Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls. (Bureau of Labor Statistics, U.S. Department of Labor) Why Investors Care
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Highlights
Employment in September came in relatively strong and both August and July were revised up, indicating that the damage from the subprime credit crisis had been kept isolated from most of the economy. Nonfarm payroll employment in September strengthened with a 110,000 gain, following a revised rise of 89,000 in August and a 93,000 boost in July. The September payroll increase was in line with the consensus forecast for a 115,000 advance in payrolls. Importantly, the fears of recession from the initial estimate of a decline in employment in August have been proven unfounded. The initial August estimate of a 4,000 decline was revised up 93,000 and July was revised up 25,000 from the previous estimate of a 68,000 increase. For August and July combined, the net revision was up 118,000.
On a year-on-year basis, nonfarm payroll employment rose 1.2 percent in September, just below the pace of 1.3 percent in August.
Within the payroll survey, strength was primarily in the service-providing industries. Service-producing jobs were robust in both September and August with gains of 143,000 and 153,000, respectively. For the latest month, increases were strongest in education & health services, up 44,000; government, up 37,000; leisure & hospitality, up 35,000; and professional & business services, up 21,000.
Good-producing industries remain weak. Manufacturing declined 18,000 in September, following a 45,000 drop the month before. Construction fell 14,000 in September after a 22,000 fall in August. Natural resources & mining slipped 1,000 in after rising 3,000 in August.
On the inflation front, average hourly earnings increased 0.4 percent in September, following a 0.3 percent rise the month before. The markets had projected a 0.3 percent increase in wages for September. Year-on-year, wages were up 4.1 percent in September, a stronger pace than the 3.9 percent in August. Wage inflation clearly will be of concern for the Fed. The average workweek in September stood at 33.8 hours - the same as in August - and matched expectations.
Aggregate hours in manufacturing were flat in September, following a 0.1 percent dip the month before. The September numbers suggests a sluggish industrial production number for the month.
Turning to the household survey, the civilian unemployment rate edged up to 4.7 percent in September from 4.6 percent in August. September's number matched the market forecast of 4.7 percent.
Today's report shows that the economy overall is still fairly strong and the Fed is going to be slow to ease soon. For the near-term, the jobs gains and continued strength in hourly earnings indicate that the consumer sector should be holding up quite well and this should support equities. But bonds are not going to like the strong September data and upward revisions to the prior two months. Overall, the September employment report supports those in the "one and done" camp on Fed easing.
Nonfarm payroll employment rattled the markets last month with the August decline in payroll jobs of 4,000 and with downward revisions to the prior two months. The markets will look to see if the dip in August was temporary or whether job growth resumes. This report certainly will play a key role in whether the Fed eases again on October 31. Strong numbers for initial unemployment claims suggest that employment is likely to return to positive growth in September. On a technical note, some of the weakness in the July and August reports was for education workers and that category can have some unusual swings from the end of the school year through the start of the school year due to seasonal adjustment difficulties. So, we may get a reversal in what was likely technical weakness in education workers. On the inflation front, average hourly earnings increased 0.3 percent in August, matching the pace in July. The civilian unemployment rate was unchanged at 4.6 percent in August, indicating continued tightness in the labor market.
Nonfarm payrolls Consensus Forecast for September 07: 115,000
Range: 50,000 to 147,000
Unemployment rate Consensus Forecast for September 07: 4.7 percent
Range: 4.5 to 4.7 percent
Average workweek Consensus Forecast for September 07: 33.8 hours
Range: 33.8 to 33.9 hours
Average hourly earnings Consensus Forecast for September 07: +0.3 percent
Range: +0.2 to +0.3 percent
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During the mature phase of an economic expansion, monthly payrolls gains of 150,000 or so are considered relatively healthy. In the early stages of recovery though, gains are expected to surpass 250,000 per month. |
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The civilian unemployment rate is a lagging indicator of economic activity. During a recession, many people leave the labor force entirely, so the jobless rate may not increase as much as expected. This means that the jobless rate may continue to increase in the early stages of recovery because more people are returning to the labor force as they believe they will be able to find work. The civilian unemployment rate tends towards greater stability than payroll employment on a monthly basis. It reveals the degree to which labor resources are utilized in the economy. |
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