KEY DATA: Payrolls: +661,000; Private: +877,000; Government: -216,000; Unemployment Rate: 7.9% (previously 8.4%); Wages: +0.1%; Hours: +0.1 hour/ Sentiment: +6.3 points
IN A NUTSHELL: “The private sector keeps adding lots of jobs as the reopening continues unabated – for now.”
WHAT IT MEANS: The employment rebound is still going strong. Job gains in September were spread across almost the entire economy, as over 70% of the 258 industries posted increases in payrolls. That is impressive. Not surprisingly, the largest rise was in hospitality, especially restaurants, which added 200,000 new (or returning) workers. Retail came in second, again not a major surprise. What was a shock was that a large percentage of the increase was in clothing stores. I guess people are going out and buying work clothes again. Reopening hotels also hired back lots of workers. Other areas of strength were health care, as people are visiting their doctors again, warehousing, as the online sector only keeps booming, amusement parks and casinos and manufacturing, where both durable and nondurable goods producers expanded their workforces. There were the usual suspect increases, such as a huge increase in social services and the special cases, such as public transit. And finally, construction was up, but at a somewhat less than robust pace given what is going on in the housing sector. The large drop in public jobs was due to the modification of the education hiring patterns. August was up more than usual and those gains, and more, were unwound in September.
As for the unemployment situation, the rate declined solidly once again, but not for the reasons we hoped. The labor force and participation rate fell sharply. A strong labor market normally draws in new workers. You cannot make much of one month’s decline, but it is something to watch going forward.
On the income front, wages increased minimally, but hours worked rose to a level seen only once before (this past May) in the 14½ years the measure has been in existence. Firms are really working those they have hired back quite hard.
The University of Michigan reported that consumer sentiment rose moderately in September to the highest level in six months. Expectations of future conditions were up somewhat more than the current conditions index. Interestingly, the report noted that “the data indicate that lower income households face continued income and job losses compared with the modest gains expected by upper income households”. That is, the recovery is not being spread evenly across income groups. That is not surprising, though it is quite troubling.IMPLICATIONS:The recovery remains on track, even if the government is getting sicker and sicker (you can take that in any way you want). Yes, the number of new positions added was below consensus, but there was a large upward revision to July and August, so the shortfall was not that great. So, where do we go from here? This morning, it is not as clear as it was yesterday. The political and therefore business dynamic of saying that the virus is under control and businesses, such as restaurants, can reopen fully may change now that the president has contracted the virus.We have to see the blowback in places such as Florida, which declared victory and moved on, before we know if the reopening process will slow. Given that we are starting to see a resurgence in the virus and that flu season is upon us, I think that is a real possibility. Going forward, payroll gains and the decline in the unemployment rate may be slower than expected and it could raise the importance of producing a vaccine that is widely available and accepted. Will investors care? Who knows? Bad news has been discounted before and the link between the president testing positive and a potential slowdown in the recovery may be a bridge too far for many.