September Jobs Report
DOW – 28 = 18,240
SPX – 7 = 2153
NAS – 14 = 5292
10 Y + .01 = 1.74%
OIL – .88 = 49.56
GOLD + 2.40 = 1258.60
The economy added 156,000 new jobs in September. The unemployment rate rose from 4.9% to 5% for the first time since April, though that was largely because 444,000 people entered the labor force, looking for work. Some 3 million people have joined the labor force in the past year.
Before the jobs report, the consensus estimates for about 170,000 new jobs in September. Still, this was the 72nd consecutive month of job gains, which compares to the previous record of 48 months of gains.
The U.S. has added an average of 178,000 jobs a month this year, down from 228,000 in 2015 and 251,000 in 2014. The economy needs to add a little more than 100,000 jobs a month to keep up with the natural increase in the size of the labor force. So, even a modest increase of 156,000 jobs is enough to take a little slack out of the labor market.
The proportion of Americans in the labor force remains near 40-year lows; but the labor force participation rate increased 0.1% to 62.9%. That may not seem like a lot, but compared to the same month a year ago, the labor force grew by 1.9%, the largest annual percentage jump since January 2007.
Importantly, the prime-age participation rate (25 to 54 years) was up 0.2% to 81.5%, the highest in nearly three years. Dig deeper and it looks like the labor force is getting younger. For 25 to 29 year olds, there has been a labor force increase of 2.5% over the past year.
The data doesn’t give any insight into why the increase is occurring, but it could be a combination of young people graduating from college or grad school or those who were not able to find work getting a job. For the first time in almost 20 years, we are now seeing a decline in the number of people outside the labor market, which is consistent with periods of full employment. I’m not saying we are at full employment, just that we are getting closer.
There is, of course, another way to look at the jump in the labor force participation rate; there is probably a very large, hidden pool of discouraged workers that still need to be pulled into the labor force. A broader measure of unemployment, the U-6 rate, which includes people who gave up looking for work or can only find part-time jobs was unchanged at 9.7% – representing about 5.9 million people. Meanwhile, just under 2 million people are long-term unemployed – out of work for more than 6 months.
So the increase in the labor force participation rate probably means businesses are now having to attract discouraged workers to re-enter the job market. And one way to attract workers is with higher wages. Hourly pay for the typical worker rose 0.2% in September to $25.79 an hour.
Over the past year hourly wages have climbed 2.6%, almost matching the post-recession high. The 2.6% rise in wages over the last 12 months is better than the 2.3% annual increase in 2015. For more than three and a half years, American workers have seen sustained real wage gains, as hourly earnings have grown faster than inflation.
Since the beginning of the current business cycle in December 2007, real wages have grown at a rate of 0.9% per year, faster than in any other cycle since 1973. Since inflation has been low, real wage growth — the actual buying power of your paycheck — has grown more quickly over this business cycle than in previous ones.
Sustained real wage growth in recent years, combined with continued strength in job creation, has led to increased incomes for middle-class families: last month, the Census Bureau reported that real median household income increased 5.2 percent from 2014 to 2015, the fastest annual growth on record. And while the wage increase for September was slightly below expectations, it still indicates the labor pool is shrinking, forcing employers to raise pay to attract workers.
Another positive is a rise in the workweek, up to 34.4 hours from 34.3 hours with the manufacturing week also slightly higher in what is a positive indication for September industrial production. While hourly wage growth has ticked up some, average weekly hours have been flat, and that means weekly earnings are only growing about 2 percent for the middle-wage group. That’s still beating inflation, which is only up about 1 percent, but this also signals the absence of full employment.
Even though wage gains have been positive, they should not be overstated – they are largely a result of low inflation rather than full employment. If prices pick up before nominal wage growth and hours pick up, any gains in real household income will prove fleeting, at best. We need to keep pulling workers in from the sidelines, and that will require more than weak wages that just barely outpace inflation. Full employment needs accommodative monetary policy from the Fed combined with fiscal policy that invests in training and education for workers, plus investment in infrastructure to support productivity.
One interesting area that might not show up in the Bureau of Labor stats is the number of people who freelance. According to new report on freelancing, there could be as many as 55 million people who don’t have traditional jobs. It is a good bet that not all those jobs are considered in the monthly jobs report. And about half of those freelancers say they don’t really want a “traditional” job.
It is important to keep in mind that freelancing is a very broad term. It can be people with multiple sources of income, or those who are doing temporary or supplemental work. It can be Uber/Lyft drivers, bloggers, editors or professionals who have full-time work but who moonlight on the side. Then there are business owners who are also freelancers.
The younger part of the workforce is much more likely to be freelancing than the older part. Among workers ages 18-24, 47% are freelancing either part-time or full-time, versus 28% of Baby Boomers. Major issues for freelancers include: debt, unpredictable income, being paid a fair rate, and benefits – or lack thereof.
Portable benefits appealed to the freelancers, with 67% saying they would support having access to health and retirement benefits regardless of their employment status. And 68% said freelancers should have the same access to credit as other workers, perhaps reflecting the difficulty even high-earning freelancers have in obtaining a mortgage.
The private sector added 167,000 jobs, while government jobs declined by 11,000. Professional and business services added 67,000 jobs. Education and health services gained 29,000 positions. Hiring by food and drinking establishments rose by 30,000. Retailers hired an additional 22,000 workers.
Construction added 23,000 jobs. Manufacturing lost 13,000 positions. Mining and logging (which includes jobs in the oil patch) showed zero change, which might actually be considered as good news – at least the energy industry wasn’t cutting jobs.
One of the key indicators for employment is education. Unemployment rate for: High school dropouts, 8.5%; High school grads, 5.2%; some college, 4.2%; College degree, 2.5%. According to a new report, “The State of American Jobs,” by the Pew Research Center, employment opportunities increasingly lie in jobs requiring higher-level social or analytical skills, while physical or manual skills are fading in importance.
Social skills are crucial in jobs that require a lot of writing, speaking, managing and negotiating, particularly in educational services and health care and social assistance. Examples of analytical skills are critical thinking, mathematics and computer programming, often found in science, technology, engineering and mathematics or STEM fields.
Overall, the jobs report was “not too hot, and not too cold” and not enough to change expectations for a Federal Reserve interest rate hike in December, although we will be able to look at 2 more jobs reports before the December FOMC meeting. Some senior Fed officials worry that wages could start to rise sharply and feed into inflation unless they act to prevent the economy from overheating.
Still, it looks like there is plenty of slack in the labor market and it seems more likely the expansion will run out of steam before we run out of discouraged workers who might fill an available job. We might have a strange jobs report next month because of Hurricane Matthew. At this time, we just don’t know how that will impact businesses and jobs but it will likely be a negative.
We also have an election to consider. The 5% September unemployment rate is the second lowest in the September before an election in nearly five decades. Since the 1968 election, only the 2000 race featured a lower pre-election jobless rate.
Most people say they are better off today than they were 8 years ago. Of course 8 years ago, the stock market had crashed, the economy was hemorrhaging about 800,000 jobs per month. That does not mean that people have been made whole from the damage suffered in the 2008 financial downturn, and it doesn’t mean that we’ve solved all the problems of the Great Recession.
When people are asked about their personal finances, and whether they are improving or worsening, people are as happy as they have been in many years – and that fits with the jobs report. But Gallup recently asked about “the way things are going” more broadly, and the results are much more negative.
By the way, if you’re wondering how different presidential administrations have performed in terms of jobs, here’s the job creation scorecard: Obama, 10.6 million so far; George W. Bush, 1.3 million; Bill Clinton, 22.9 million; George H.W. Bush, 2.6 million; Ronald Reagan, 16 million; Jimmy Carter, 10.3 million.