– October 4, 2019
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U.S. nonfarm payrolls added a modest 136,000 jobs in September, below the consensus expectation of 145,000. The prior two months were revised higher, to 168,000 and 166,000 for August and July, respectively. The three-month average from July to September was 157,000, a decent performance but well below the monthly average gain of 223,000 for all of 2018.

Private payrolls added 114,000 in September following revised gains of 122,000 in July and August (see bars in chart). Those resulted in a three-month average of 119,000, the slowest three-month average since 2012 (see chart). For 2018, private payrolls averaged 215,000 new jobs per month. Slowing payroll growth may be a sign of a tight labor market and difficulty employers are having finding qualified workers, or it may be a sign that business activity is slowing and employers are getting nervous about future growth prospects. Business surveys suggest both may be true. Overall, the preponderance of data suggests a significant degree of caution is warranted, but it is still too early to expect a recession in the coming months. The most likely path remains continued economic expansion albeit at a slow pace.

Within the 114,000 gain in jobs, goods-producing industries added 5,000 employees in September, below the average gain of 23,000 over the past year. Durable-goods manufacturing led on the downside, losing 4,000 jobs. Construction led the way on the upside, adding 7,000 jobs. The 12-month average for construction industries is 13,000. Mining and logging industries were unchanged while nondurable-goods manufacturing rose by 2,000.

For private service-producing industries, which typically account for the lion’s share of job creation, payrolls added 119,000 workers, led by a 41,000 increase in health care and social-assistance industries. Professional and business services added 34,000, and leisure and hospitality payrolls grew by 21,000. Retail lost 11,000 workers, continuing the long-term decline. Over the past year, retail has shed 61,000 jobs or an average of 5,000 per month.

The public sector added 22,000 employees. State and local governments added 24,000 while the Federal government shed 2,000 despite hiring 1,000 workers for the upcoming 2020 census.

The unemployment rate fell to 3.5 percent, the lowest since December 1969, and the broader measure of unemployment that includes discouraged, marginally attached and part-time workers, the U-6 measure, fell to 6.9 percent, the lowest since 2000. The participation rate rose to 63.2 percent in September, matching the highest since 2013. The participation rate remains well below the 66.0 to 67.0 percent rate that prevailed from 1988 through mid-2008.

Average hourly earnings were unchanged in September, resulting in a 12-month gain of 2.9 percent, the slowest rise since 2018 (see chart). Gains in average hourly earnings have been slowing since hitting a 12-month gain of 3.4 percent in February (see chart). The average length of the workweek was unchanged at 34.4 hours in September. Average weekly hours have been bouncing around between 34.3 and 34.6 hours since 2012.

Combining payrolls with hourly earnings and hours worked, the index of aggregate weekly payrolls rose 0.1 percent in September and is up 4.2 percent from a year ago, the slowest since 2017 (see chart). This aggregate measure has posted relatively steady year-over-year gains in the 3.5 to 5 percent range since 2011 but has been decelerating since peaking in January. The index has posted year-over-year gains below 5 percent for 6 consecutive months.

The disappointing jobs report for September raises concerns over the strength of the labor market. The economy has had two other significant slowdowns during the current record-long expansion. Both times, growth reaccelerated. However, escalating trade wars and inconsistent, incoherent policies are taking a toll on consumer and business confidence. While economic data remains mixed, the most likely path remains continued expansion however, significant caution is warranted.

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Robert Hughes

listpg_hughes Robert Hughes joined AIER in 2013 following more than 25 years in economic and financial markets research on Wall Street. Bob was formerly the head of Global Equity Strategy for Brown Brothers Harriman, where he developed equity investment strategy combining top-down macro analysis with bottom-up fundamentals. Prior to BBH, Bob was a Senior Equity Strategist for State Street Global Markets, Senior Economic Strategist with Prudential Equity Group and Senior Economist and Financial Markets Analyst for Citicorp Investment Services. Bob has a MA in economics from Fordham University and a BS in business from Lehigh University.
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