Ignore the Spin: September's Jobs Report Was Phenomenal

Posted by jbrumley on October 6, 2019 1:22 AM

The media put their bias on full display Friday, in response to last month's unemployment and payrolls-creation numbers. Despite a 50-year low level in unemployment, the shortfall in expected jobs-creation was deemed problematic ... a sign that employers were scaling back on hiring, fearing a slowdown looms ahead. Reality: Employers are struggling to find enough qualified workers to fill open positions. Most everyone has a job, and people are enjoying their raises - either at their existing places of work, or pay raises achieved by finding a new job.

The evidence to support that premise? Every other jobs-related data nugget aside from the payroll growth figure.

But, first things first. Last month, the U.S. economy added 136,000 jobs, versus expectations of 145,000. That's more or less where the monthly figures have been rolling in of late, but there's also a clear weakening underway. Still, the unemployment rate fell from 3.7% to 3.5%.

How does that happen? There are several contributing factors, not the least of which is the way the payroll-growth figure is calculated. As an alternative (the one that's used to calculate the official unemployment rate), the number of people in the U.S. officially employed now stands at a record-breaking 158.27 million. That's a 391,000 person increase, and though less than August's 590,000 increase, both are still amazingly strong numbers that indicate an acceleration is underway. Conversely, the number of people officially unemployed - those receiving unemployment benefits - slumped to multi-year low of 5.769 million. And, the number of people without jobs that aren't getting unemployment benefits also fell to a multi-year low level of 4.88 million.

Anyone who really wants a job can get a job.

Bolstering the case that the jobs picture is far healthier than it was billed is the labor force participation rate, and the portion of the U.S. population that has a job. The former is a measure of people who are employed along with people who are receiving unemployment benefits. The latter is, as it sounds, the percentage of the population that's actually working at this time. That employed/population ratio has moved up to a multi-year high reading of 61.0%. Meanwhile, the labor force participation rate tied its multi-year high of 63.2%.

It's an encouraging sign, as it indicates individuals who had previously been on the sidelines and/or disinterested in working have found opportunities that are simply too good to pass up. Strong pay is the key driver of their consideration.

The chart below isn't fully updated through September, though even through August it's clear wages have been solidly on the rise since 2014. For September, hourly pay rates were up 2.9% year-over-year. That outpaces current inflation rates. Workers aren't being asked to work fewer hours to offset higher hourly rates either.

That wage growth rate was suggested to be a disappointment, and slowing from prior growth rates. And technically, it was. It was the first time in over a year that hourly pay rates didn't grow at an annualized clip of at least 3.0%. But, non-managerial wages improved 3.5%, suggesting the workers at the lower end of the pay (and job security) scale are finally starting to fully benefit from broad economic strength.

The multi-decade low unemployment rate and record-breaking employment tallies juxtaposed against multi-year strength in labor force participation rate (and the employed/population ratio) all suggest strength rather than weakness. Plus, pay rates can't grow faster than inflation indefinitely. That still doesn't point to a contraction though, or even a meaningful slowdown.

On balance, there's little to legitimately complain about in the September jobs report. Although the media elected to put a bit of a scary spin on things - since fear and panic sells - that's a misleading assessment. We grade last month's overall jobs picture with a solid A.