September’s Jobs Report Delivers Bad News/Good News to Federal Reserve

Oct 02, 2015

There’s bad news and good news for the Federal Reserve in the Bureau of Labor Statistics’ September Employment Situation Report.

2015 10 02 US Labor Graphic

The bad news, although one shouldn’t descend too deeply into a funk on its account, is that total employment in the nation did not rise as much as expected.

The combination of a record-high level of open positions, as reported in the most recent JOLTS report, plus a latest initial jobless claims figure that stayed below 300,000 for the 30th week in a row, pointed to a month-to-month jobs gain of 200,000.

Instead, the figure came in at +142,000. Also, the level of increase in the month before (August) was revised backwards, to +136,000 from +173,000.

As the rest of 2015 unfolds, it will be interesting to see if job-creation deceleration in August and September has been merely a speedbump along an otherwise floor-to-the-pedal raceway – maybe having something to do with seasonality factors as summer vacation ended and the new school year commenced – or if it is indicative of a generally weakening trend in employment.

Certainly, there has been no shortage of unsettling developments, often in other parts of the world, to obsess about – slowing growth, with an impact on global commodities demand, in China; Russia’s unpredictable military actions and goals in Syria; and a U.S. manufacturing sector that is struggling to maintain export sales with the handicap of a high-valued greenback.

While there may not be much, from an economic standpoint, for the Fed to like about the latest jobs number, it can at least be glad about one thing. The Board of Governors must be collectively breathing a sigh of relief as they say to themselves, “Thank goodness we didn’t raise interest rates at our last Open Market Committee (FOMC) meeting.”

A Fed-initiated interest rate hike may have been postponed, not just until December of this year, but perhaps not before early 2016.

There’s another way in which the U.S. economy may reap a benefit. The soaring flight of the greenback has been partially due to the success America has achieved in resuscitating its labor market. As far as that goes, the unemployment rate in September stayed unchanged versus August, at a relatively tight 5.1%.

But if job creation in the nation is truly pulling back, the piston driving the U.S. dollar higher will lose some of its steam and domestic manufacturers will be better positioned to woo and win foreign customers.
Over the last two months, there have been job cuts in the U.S. manufacturing sector, -18,000 in July and -9,000 in August. The year-over-year percentage change of employment has declined from nearly +2.0% at the beginning of 2015 to only +0.9% at present.

The construction industry added 8,000 jobs in the latest month. The year-over-year gain in construction employment has been slightly over 200,000 jobs. On a percentage-change basis, that’s +3.3%, which compares quite favorably with the national average all-jobs increase of +2.0%.

The services sector provided 92% of the total jobs increase (i.e., +131,000 out of +142,000) in August.

Within services, the three job-creating sub-sector leaders were: leisure and hospitality, +35,000; professional and business services, +31,000; and education and health services.  +29,000.

The large nominal jobs increase for ‘education and health services’ as a whole was thanks to a medical component jump, at +36,000, that more than compensated for a school facility stumble, at -8,000.

Government hiring was up solidly again in August, +24,000, on top of an average monthly climb of +30,000 in the preceding three months. The federal government continued to hold its staffing level essentially constant (-2,000 jobs month to month in August), but both state and local governments expanded their payrolls, +17,000 and +9,000 respectively.

Washington may be headed towards another debt-ceiling crisis, due to the claustrophobic dynamics of the tug for control between the Democrats and the Republicans on the Hill, but revenues for the public sector generally are being augmented by escalating post-recession personal and corporate income taxes, as well sales and property tax advances.

Construction’s not seasonally adjusted (NSA) unemployment rate in August was 5.5%, which placed it in a tie with June for lowest monthly level since before the 2008-09 economic downturn. A year ago, construction’s jobless rate was 7.0%. Three years ago, in September 2012, it was 11.9%.

The jobless rate in manufacturing currently stands at 4.1%, an improvement versus September 2014’s 4.5%.

The lowest unemployment rate among private industry sub-sectors is in financial activities, 2.6%.

Compared with 6.1% a year ago, the jobless rate in mining, quarrying and oil and gas extraction has nearly doubled to 11.2% − a not surprising result given the sharp drop in the international price of oil, which has led to energy sector capital spending cutbacks and reductions in the number of drilling rigs assigned to exploration.

Before wrapping up, there’s one other subject matter to cover. Reduced forward momentum in job creation will further delay the increases in wage rates that pundits have been anticipating, although so far in vain.

Average hourly and average weekly earnings for all workers in the U.S. in August were both +2.2% year over year. The comparable figures for construction were +1.9% and +0.6%.

Limiting the analysis to only non-supervisory workers, the all-sectors gain for average hourly earnings was +1.9% year over year and for average weekly earnings, +1.6%.

Non-supervisory construction workers did not fare as well, with average hourly earnings only +0.7% and average weekly earnings -1.8% year over year.

Sometimes, incredulity is expressed that American wages aren’t rising faster. This isn’t the mystery one might suppose.

A decade or so ago, labor rates in the industrialized world began to flatten or decline as work was sent out-of-country to be undertaken in jurisdictions with markedly lower-costs.

As businesses in many of those emerging nations are now heeding demands not only for higher earnings, but also better working conditions, − both of which are positive developments in the big scheme of things − some employment is being repatriated.

But there won’t be better-than-moderate wage hikes domestically until more bottlenecks rear up at key choke-points for labor supply.

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