• Another disappointing jobs report for US
• US non-farm payrolls grew 194,000 in September
• Unemployment rate fell to 4.8%
• Wage growth increased 0.6% mom, 4.6% yoy
• Labor force participation was little changed at 61.6%
• September's meager payroll gains probably will not deter the Fed

The US economy created jobs at a much slower-than-expected pace in September, a pessimistic sign about the state of the economy though the total was held back substantially by a sharp drop in government employment. The economy created a stingy 194,000 new jobs in September to mark the second disappointing monthly increase in a row, suggesting a lack of labor could frustrate a robust US economic recovery in the months ahead. Hiring in August, meanwhile, was not quite as weak as it originally seemed. The government revised its estimate of how many new jobs were created to 332,000 from 235,000. The change in total nonfarm payroll employment for July was revised up by 38,000, to 1,091,000. With these revisions, employment in July and August combined is 169,000 higher than previously reported.

The headline number was hurt by a 123,000 decline in government payrolls, while private payrolls increased by 317,000. Leisure and hospitality again led job creation, adding 74,000 positions, as the unemployment rate for the sector plunged to 7.7% from 9.1%. Professional and business services contributed 60,000 while retail increased by 56,000. Job gains were spread across a variety of other sectors: Transportation and warehousing (47,000), information (32,000), social assistance (30,000), manufacturing (26,000), construction (22,000) and wholesale trade (17,000). Local government education jobs fell by 144,000, which may have been due to seasonal adjustments in the numbers.

The unemployment rate dropped more than expected to 4.8%, as job gains in the household survey were stronger at 526k. The number was also flattered by a 0.1 percentage point drop in the participation rate and 338k leaving the work force in the month. Average pay rose 19 cents to USD30.85 an hour, pushing the increase over the past year up to 4.6% from 4%

The unemployment rate fell by 0.4 percentage point to 4.8% in September. The number of unemployed persons fell by 710,000 to 7.7 million. Both measures are down considerably from their highs at the end of the February-April 2020 recession. However, they remain above their levels prior to COVID-19 pandemic (3.5% and 5.7 million, respectively, in February 2020). The drop in the jobless rate came as the labor force participation rate ticked down to 61.6% from August's 61.7%, meaning more people who were side lined during the coronavirus pandemic have returned to the workforce. The employment-population ratio, at 58.7%, edged up in September. This measure is up from its low of 51.3% in April 2020 but remains below the figure of 61.1% in February 2020. A more encompassing number that also includes so-called discouraged workers and those holding part-time jobs for economic reasons declined to 8.5%, also a pandemic-era low. The number of long-term unemployed dropped by 496,000 to 2.7 million in September. They accounted for 34.5% of the 7.7 million officially unemployed people, down from 37.4% in August. The median duration of unemployment fell to 13.3 weeks from 14.7 weeks in August. A broader measure of unemployment (U6) that includes discouraged workers and those holding part-time jobs for economic reasons fell sharply, dropping to 8.1% in Sep from 8.9% in August.

Wage growth also unexpectedly accelerated on a month-over-month basis, reflecting in part a slower return of service-sector workers on the lower end of the wage scale. The monthly gain of 0.6% pushed the year-over-year rise to 4.6% as companies use wage increases to combat the persistent labor shortage.

September's meagre payroll gains probably will not deter the Fed

For market participants, the September jobs report serves as a key indicator for the timing of a monetary policy move by the Federal Reserve.

Fed officials have suggested the economy had already met the central bank's goals for inflation, and that the only hurdle still left to clear was in the labor market. Last month, Fed Chair Jerome Powell suggested an at least decent September jobs report would be enough to suggest the economy had improved to the point of no longer needing the Fed's extraordinary monetary policy support. The Fed has already signaled it expects to begin tapering its crisis-era asset purchase program by year-end, or slowing the pace of purchases of mortgage-backed securities and Treasuries from its current rate of USD120bn per month.

Though the September’s employment report showed the unemployment rate dropping to an 18-month low of 4.8%, that was in part due to people leaving the labor force. Nonfarm employment rose by just 194,000 jobs, as employers continue to have trouble finding the workers they need. The September showed a ninth consecutive month of net payroll gains in the US economy, albeit at a much slower-than-expected rate. But there were signs of labor market tightness. Wage gains accelerated further, permanent job losses decreased and fewer people were experiencing long spells of unemployment.

With wage inflation rising, September's meagre payroll gains probably will not deter the Federal Reserve from beginning to scale back its massive monthly bond-buying program this year. The bar was always quite low for a tapering of asset purchases to be announced in November and the combination of upward revisions, the drop in the unemployment rate, and signs of labor market tightness should more than meet it. September’s tally is unlikely to stay the Fed’s hand on starting to taper asset purchases in November.

Source: BIMB Securities Research - 11 Oct 2021