Friday, October 5, 2012
The September jobs report is the big news of the day, both for the markets as well as political partisans. From the market's perspective, the report is not materially different from what we have been seeing in recent months, though it does carry a few positive internals.
The key positives are in the drop in the unemployment rate and the positive revisions to the preceding two months. But with elections around the corner, the report will have a bearing on the political debate as well. And on that front, the report has something for everyone - different parts of the reports can spun in different ways. That said, the bottom line is that it's a net-positive report.
The Bureau of Labor Statistics (BLS) reported September non-farm payroll gains of 114K, broadly in-line with expectations, but August's 142K tally (August was revised higher from 96K). The revisions trend was clearly positive - with August and July both revised higher, but with the revisions appear to be mostly in government jobs, which turned from negative to positive.
The unemployment rate ticked down to 7.8% from 8.1% last month, driven primarily by very strong gains in the Household survey. The Household survey showed 873K jobs added in September, after several months of tepid gains, and helped bring down the unemployment rate below the 8% level for the first time since early 2009.
Wednesday's ADP (ADP) report of strong private sector job gains appears to have been off the mark this month again, as was the case in August. A total of 104K private sector jobs were created in September, compared to 97K in August, with the government sector adding 10K. The ADP report showed private-sector job gains of 162K in September.
Manufacturing lost 16K jobs in September, compared to 22K jobs lost in August, while service sector jobs totaled 114K, compared to job gains of 119K in August and 143K in July. The manufacturing decline is particularly worrying as the factory sector was consistently adding jobs in this recovery, but seems to have lost steam lately even though the latest ISM survey showed a rebound. The average workweek ticked up to 34.5 hours from 34.4 hours last in August, while average hourly earnings increased $23.58 from $23.51 last month.
Today's jobs report is modestly on the positive side, though payroll gains have by all means been underwhelming in recent months. Leading indicators of labor market growth like weekly jobless claims, the ISM surveys, and the ADP data are not showing any signs of improvement from that monthly pace either. The fact is that we will not see acceleration in the pace of job creation till the U.S. economy's growth pace accelerates. The economy expanded at the rate of 1.6% in the first half of the year and is not expected to grow materially faster in the second half of the year.
It may seem like the chicken-and-egg problem - you need jobs to accelerate GDP growth and a growing economy to create more jobs. But it actually is not, as there is no doubt about what needs to come first - GDP growth needs to accelerate. But what will be the catalyst(s) for that growth in our Rogoff & Reinhart world?
The signs of life on the housing front are definitely encouraging and the Fed's focus on that sector through its QE3 program may hold some promise. Can housing push the economy out of the stall-speed it has been stuck in for a while now?
Director of Research
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