September Employment Situation – Mixed Message Much Like Other Recent Economic Reports
Civilian Unemployment Rate: 9.8% in September vs. 9.7% in August, cycle low is 4.4% in March 2007.
Payroll Employment: -263,000 in September vs. -201,000 in August, net loss of 13,000 more jobs after revisions of payroll estimates for July and August.
Hourly earnings: $18.67 in September vs. $18.66 in August, 2.5% yoy increase vs. 2.6% yoy increase in August, cycle high is 4.28% yoy increase in Dec. 2006.
Household Survey – The unemployment rate climbed to 9.8% in September, one notch higher than the reading in August. The jobless rate has doubled from the 4.9% rate registered at the start of the recession in December 2007. The civilian labor force participation rate fell by 0.3 percentage points to 65.2 in September.
The broad measure of unemployment (includes those working part-time because they cannot find full-time jobs and those not looking for work but want and are available in addition to those included in the tally of unemployed in the headline jobless rate) recorded a new high of 17.0% (see chart 1) in September.
Establishment Survey – Payroll employment fell 263,000 in September after a revised loss of 201,000 jobs in August. The headline losses of jobs looks less foreboding if one evaluates the change in a 3-month framework. In the three months ended September, on average, 256,000 jobs have been lost compared with a loss of 691,000 in the first quarter and 428,000 jobs lost in the second quarter. The recovery process will be a two steps forward one step backward game. Other recent economic reports have shown a similar trait.
There is a silver lining emerging in the temporary help sector of the labor market. The tally of temporary employment declined by 1,700 in September compared with an average loss of nearly 82,000 per month in the October 2008 –January 2009 period.
Highlights of job losses/gains in September:
Construction: -64,000
Manufacturing: -51,000
Services: -147,000
Retail trade employment: -39,000.
Professional and business services: -8,000
Temporary help: -1,700
Financial activities: -10,000.
Health care employment: +19,000
The workweek in September was down one notch to 33.0 hours. The record low reading of the workweek suggests that demand can be satisfied as the economy recovers by extending the workweek prior to increasing payrolls. The index of hours worked fell 0.5% in September, putting the decline in the third quarter at 3.0% vs. 7.8% drop in the second quarter.
The 0.5% decline in the index of factory man-hours points to a drop in industrial production. However, industrial production advanced in August despite a decline of the man-hours index. Therefore, the industrial production report should sort out the puzzle on October 16, 2009. The one cent increase in hourly earnings and a drop in weekly earnings bodes poorly for personal income in September.
Conclusion – There is no change in our forecast with regard to the Fed applying monetary policy brakes only in mid-2010. A jobless recovery is the most likely scenario, which suggests that strong payroll employment numbers will appear much later in the cycle. Strong signals from labor market indicators and evidence of a self-sustaining growth path are essential for the Fed to take action.
