September Payrolls Miss: 136K Jobs Added As Wage Growth Crashes

It wasn't quite as bad as the whisper number, which saw September payrolls dropping below 100K, but it wasn't great either: moments ago the BLS reported that in September the US added 136K jobs, below the 145K expected, however the big story here was that the August number - as has become customary - was revised notably higher, from 130K to 168K, the mirror image of what happened at ADP, which scrambled to catch down to the original NFP print.

The change in total nonfarm payroll employment for July was revised up by 7,000 from +159,000 to +166,000, and the change for August was revised up by 38,000 from +130,000 to +168,000. With these revisions, employment gains in July and August combined were 45,000 more than previously reported.

Of note: the three-month average of private payroll gains dropped to 119,000, the smallest since 2012, which however still remains above the organic growth in the labor force. If only it also helped raise wages.

Stripping aside the volatile due to census hiring government workers series, the US added 114K private payrolls, which also missed the 130K expectation, and was below the upward revised 122K in August (up from 96K previously).

Below the surface, there was some more bad news, as well as some good news.

The good news is that the unemployment rate dropped again, sliding from 3.7% to 3.5%, below the expectation for an unchanged print, and the lowest since 1969...

... giving President Donald Trump a fresh talking point in what was otherwise a dismal jobs report, and sure enough Trump wasted no time to bask in the near record low unemployment rate, tweeting "Breaking News: Unemployment Rate, at 3.5%, drops to a 50 YEAR LOW. Wow America, lets impeach your President (even though he did nothing wrong!)."

The bad, however, was that in a stark reversal to recent trends, the average hourly workweek missed badly, and was unchanged from August (when it rose 0.4% sequentially), missing expectations of a 0.2% increase. Digging into the number, wage growth actually declined sequentially, dropping by one cent from August

On a Y/Y basis, earning grew 2.9%, far below the 3.2% in August, and also below the 3.2% expected. It was the weakest wage growth since July 2018. All this happened as the average weekly hours worked remained unchanged at 34.4.

This is a big issue for two reasons: despite a near record low unemployment rate (and continued payroll growth), wages rose at the weakest pace in more than a year. Of course, the lack of wage growth means that the Fed can now go ahead and cut rates even more, which is why stocks are surging in kneejerk reaction to the jobs report.

Looking at the composition of the report, manufacturing fell by 2,000 jobs, while service providers added a four-month low 109,000 jobs; and while leisure and hospitality workers added 21,000 jobs, a six-month high, retailers cut jobs for an eighth consecutive months. Most notably, since reaching a peak in January 2017, retail trade has lost 197,000 jobs. Thanks Amazon.

Some more details:

  • In September, health care added 39,000 jobs, in line with its average monthly gain over the prior 12 months. Ambulatory health care services (+29,000) and hospitals (+8,000) added jobs over the month.
  • Employment in professional and business services continued to trend up in September (+34,000). The industry has added an average of 35,000 jobs per month thus far in 2019, compared with 47,000 jobs per month in 2018.  
  • Employment in government continued on an upward trend in September (+22,000). Federal hiring for the 2020 Census was negligible (+1,000). Government has added 147,000 jobs over the past 12 months, largely in local government.
  • Employment in transportation and warehousing edged up in September (+16,000). Within the industry, job growth occurred in transit and ground passenger transportation (+11,000) and in couriers and messengers (+4,000).
  • Retail trade employment changed little in September (-11,000). Within the industry, clothing and clothing accessories stores lost 14,000 jobs, while food and beverage stores added 9,000 jobs. Since reaching a peak in January 2017, retail trade has lost 197,000 jobs.

Commenting on the data, Bloomberg economist Eliza Wanger writes "the still healthy 136k-payroll gain and drop in unemployment rate to 3.5% underscores that the labor market remains solid. While the trend in labor demand has been deteriorating and risks are rising, conditions in the labor market are tight and layoffs are exceptionally low."

BMO's Jon Hill, meanwhile, focuses on what this means for the October FOMC meeting: "as for what this means for the FOMC, it reduces the urgency behind easing - that said, the ISMs were more than sufficiently concerning to justify another cut later this month. Not much changed in that regard today, with the softer earnings balancing the fall in the unemployment rate."

As for CIBC's Kartherine Judge, despite the poor data, the October rate cut has been pushed into December: "The US labor market appears to still be on relatively healthy footing despite the downside miss on payrolls for September...Overall, these data are constructive enough to allow the Fed to skip October in our view, and cut in December."