The unemployment rate fell below 6% for the first time in six years. But this is once more because of a lower labour force participation ratio. Non-farm payrolls were dynamic, but the sectors adding the most jobs are also the ones that do not pay much. As wages in the manufacturing sector decelerated quite markedly, there is no trace of inflation pressures in this report.
The headline will definitely be about the unemployment rate falling below 6% in September. At 5.9%, it is indeed the lowest since July 2008. Does this mean the labour market is tightening? Nope. Since July 2008, a net 2 014k positions have been created, while the US working-age population grew 14 582k. If you do the math, you see that the unemployment should be markedly up as for one position created there were more than 7 new “potential” entrants. The thing is that a lot of workers chose to leave. Over the period, the labour force, meaning the population actively involved either through holding a job or seeking for one, has been going down: the labour force participation ratio went down from 66.1% to 62.7%.
Admittedly, part of this comes from an ageing population. But a large part of the decline comes from the population aged between 20 and 54 year old (about a third), which mostly stopped the job hunt because there were no jobs to be found. On top of them, there also are the workers willing to work more hours but unable to do it.
This is what we do call job underutilisation or slack or shadow unemployment. The high number of those people explains why, despite the rapid fall in the unemployment rate (it was 7.2% in September 2013), hourly earnings remain desperately flat: in September, they were up 0.2% m/m, i.e. 2.0% y/y. Deeper in the details, news is even worse, as wages decelerated markedly in the manufacturing sector (+1.3% in September).
Over the month, non-farm payrolls gained 248k with July and August data revised upwards to 243k and 183k, respectively. In a normal situation that would be healthy reading. In the current one, it remains very far from what would be needed to close the slack. As for the “quality” of jobs created, most positions were added in low-pay sectors, as leisure and hospitality (USD 13.98 per hour), trade and transport (USD 21.44 per hour).
Still, this report also brings good news. Our view is that the main one is in the acceleration of hiring in the business services industry. This sector added 81k positions in September while it represents the bulk of the July and August upward revision. Another good news come from the State and local governments, which added 14k positions, mostly in education.
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