September’s much anticipated jobs report is here and the news is… ok. The US economy added 156,000 nonfarm payroll jobs in September. Economists’ expectations were once again dashed — they were looking for something closer to 170,000 — but there’s certainly nothing wrong with 156,000, even with the unemployment rate ticking up from 4.9% to 5.0%. Wage growth continues to be slow but has risen by 2.6% over the course of the year.
To put that into perspective, let’s look at some of the key measures around employment and unemployment.
- Unemployment Rate: 5.0%
- Labor Force Rarticipation Rate: 62.9%
- Employment Population Ratio 59.8%
- Marginally Attached: 1.8 million
- Discouraged Workers: 553,000
- Long Term Unemployed: 2.0 million; which is 24.9% of unemployed overall
None of these figures changed significantly from previous months, despite movement within particular industries. Earlier this week the IMF predicted continued slow growth in North America, and there’s nothing in this report or in the overall trends for the year that suggest they’re wrong. And while hiring is down this year over 2015 — an average of 178,000 per month versus 229,000 per month in 2015 — that’s not a sign of the end times either. Adding fewer jobs month to month doesn’t mean the economy is shrinking, it merely means that growth is slowing, and unfortunately, slow growth is a global trend that goes beyond the job market to deeper economic and political forces.
Breaking It Down
So where did we add all those jobs? Chiefly in the same sectors we’ve been adding jobs throughout 2015 and 2016. Tech, health care, service and retail are all still continuing to grow. Mining, manufacturing and other resource sectors continue to shrink, but somewhat surprisingly, construction, which has been relatively robust, showed little change over last month. Wholesale trade, transportation and warehousing, information, financial activities, and government also changed so little as to not be worth talking about.
Here’s where the economy made its biggest gains:
- Professional and business services: +67,000
- Healthcare: +33,000
- Food services/bars: +33,000
- Retail: +22,000
Not So Dramatic Revisions
One of the most important, and most underreported, parts of the monthly BLS jobs report is its revisions to past reports. Earlier this month I warned that August is the most commonly revised month and that we could be in for a surprise when the September report finally dropped. Now that it’s here, I’m happy to report that those revisions weren’t as bad as I was expecting. BLS adjusted July and August job gains down by only 7,000 jobs total.
“The change in total nonfarm payroll employment for July was revised down from +275,000 to +252,000, and the change for August was revised up from +151,000 to +167,000. With these revisions, employment gains in July and August combined were 7,000 less than previously reported. Over the past 3 months, job gains have averaged 192,000 per month.”
Underemployment and Misaligned Employment
Even at 5.0% unemployment continues to be quite low but underemployment is much higher — it’s closer to 10%. Underemployment and misaligned employment, that is, not having enough work or not having enough of the right kind of work, continue to be significant problems for American workers. The US economy has all but recovered from the 2008 crash and the overall employment and growth picture is fine, although not ideal. But the overall unemployment and growth rates don’t speak to the reality of individual workers who have been squeezed out of shrinking industries, or how college educated workers have displaced high-school educated workers in mid and low wage jobs.
These are trends that aren’t well represented in by the BLS data. Too, they aren’t trends that are being addressed in either Presidential campaign, both of which have instead focused on vague promises to “grow the economy” and “bring back jobs.”
Don’t Believe the Hype
For market-watchers, the most significant impact of the September jobs report is how it might impact the Fed’s decision to change interest rates. Vice Chairman Stanley Fischer called last month’s gains a “Goldilocks” number, which may suggest that the Fed is getting ready to make another rate change in December. He also said that “unemployment is somewhere very close to the natural rate. I think we’re close to full employment.”
That sunny outlook is in contrast with the IMF, who, earlier this week warned that protectionist political policies are exacerbating slow global growth and will only make things worse in coming years. The truth, I think, is somewhere in the middle. There is nothing particularly alarming in the September report — job gains were lower than hoped for but the big picture is about what everyone was expecting. The US economy is far from a crisis point, but I think the IMF is smart to warn that we are inching closer to one. Slow growth isn’t a worse case scenario but it can increase political unrest. That, combined with the lack of attention to underemployment and misalignment can lead to a lot of workers feeling left out and left behind.
This more complicated picture of the economy is something to keep in mind during this Sunday’s Presidential debate and until Americans go to the polls on November 8.