September Employment Report

KEY DATA: Payrolls: -33,000; Private Sector: -40,000; Revisions: -38,000; Restaurants: -105,000; Unemployment Rate: 4.2% (down 0.2 percentage point); Wages: +0.5%

IN A NUTSHELL: “The hurricanes  messed up an awful lot, including the economic data.”

WHAT IT MEANS: Yesterday I warned that the jobs number could be worse than expected and it was. Indeed, a decline was a surprise though not a shock. But the economy is not backpedaling. Really, did the restaurant sector collapse? Yes, they closed because of the hurricanes and some of them may never reopen, but most will be back up and running. Otherwise, the report was fairly normal. There were job increases in health care, transportation, construction, finance, insurance, professional services and government. Manufacturing employment eased, but this sector does bounce around a lot. And retail continued to shrink, but that was not a surprise. In other words, most of the data in the report point to nothing amiss in the labor market other than the hurricanes.

The unemployment rate declined sharply, but even here we have to sit back and wonder what happened. There were outside changes in most of the components of the unemployment number and that raises questions about whether the drop was overstated. The government indicated the hurricanes didn’t affect the rate, but I am not so sure.

Finally, there was a significant rise in the average hourly wage rate. I would like to say that we are finally seeing the tight labor market show up in wages, but I am not so sure. There was a large decline in low wage employment and that might have affected the average to the upside.

MARKETS AND FED POLICY IMPLICATIONS: Sometimes you have to just sit back and relax and this is one of those times. The decline in the number of jobs was a direct result of the hurricanes and next month we are likely to see things turn around, probably with a vengeance. Actually, this was a decent report. If you back out the weather-related issues, you probably get a number that is about trend. That implies the October increase could be above 300,000. As for the unemployment rate decline, that too needs to be viewed with some caution. The government indicated the number was not affected by the storms but the details of the report were way out of the ordinary. Basically, this report should be filed away as a wait and see what happens with the October numbers. And then you average them out. Will the market react to the worse than expected jobs number or better than expected unemployment rate? It shouldn’t. But what it should be concerned about is the wage gain, though that too may have been a creation of the temporary shut down of all those restaurants that forced a lot of lower paid workers off the payrolls. Otherwise, the best thing to say about this report is: Have a great weekend!