Jobs Report a Mixed Bag

Posted by Brad McMillan, CFA, CAIA, MAI

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This entry was posted on Oct 4, 2019 2:59:18 PM

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jobs reportThe big economic news today is the jobs report, which was a much more mixed bag than usual. Expect to see headlines saying it was a terrible report, a good report, and pretty much everywhere in between. In fact, on the whole, this report shows that while growth is slowing, the economy continues to expand and is likely to keep doing so. Let’s take a look.

Reality versus the headlines

There were 136,000 new jobs in September, which was below the expected 145,000. This number is bad, but the prior month was revised up from 130,000 to 168,000. That upward revision should more than offset the shortfall in September, meaning we ended the month ahead of expectations. Bad headline, details not so bad. Private payrolls also did better than the headline would suggest. Although the 114,000 private jobs created fell short of the 130,000 expected, the prior month was revised up from 96,000 to 122,000. Again, this revision more than erases the shortfall and leaves the number above expectations overall. Any way you look at it, job growth continues—and at a faster rate than expected. The reality is much better than the headlines.

A tale of two surveys

There are other reasons to believe the report was better than the headline number. The jobs report is based on two surveys. One, which surveys businesses, is the source of the numbers above. The other, the household survey, queries real people rather than businesses. Here, job growth was reported to be 391,000. The truth is usually somewhere in between the two surveys, but the household survey certainly indicates things are better than the headlines suggest. In fact, with household job growth significantly higher than the reported growth in the labor force, the unemployment rate dropped to a 50-year low of 3.5 percent, and the underemployment rate dropped to 6.9 percent.

So, should we ignore the headline number?

No, because there are some worrying stats in the report as well. The most concerning is that wages were flat for the month. They came in well below the 0.2 percent growth expected and even further below the 0.4 percent of the previous month. Of course, one month doesn’t make a trend. But given the drop in the unemployment rate, this stat looks a bit suspicious and will need to be watched. Similarly, the average weekly hours worked was flat, which also suggests the household numbers may be a fluke and that the headline number is a better indicator.

A weak (but acceptable) report

The truth of the matter is probably somewhere in the middle. The headline number shows some weakness, but it is still at a level that exceeds the growth of the labor force. Annual job growth ticked up from last month, although it still remains weak, and is still above the historical trouble zone. On this basis, the job market remains healthy. Weak wage growth, though, suggests employers may no longer be bidding up wages to compete for employees, which is likely a sign of pending weakness, if it persists. All in all, this is a weak but acceptable report that says the economy is likely slowing, but still growing.

What will the Fed think?

The next question is what this report will mean for the Fed’s next meeting, when it decides whether or not to cut rates. Although there have been signs of weakness, including drops in both consumer and business confidence, this jobs report is likely solid enough to keep the Fed on hold for another meeting. I would say the verdict here is just good enough.

Given all of the headline risks and worries, that is actually not a bad place to be.

Upcoming Appearances

Are you attending the 2019 FPA Annual Conference in Minneapolis, Minnesota? Be sure to join my “Economic and Market Update” during the Educational Breakout Sessions on Friday, October 18, from 7:45 A.M. to 8:45 A.M. CT. To learn more, visit https://fpaannual.org/.

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