September nonfarm payrolls rose by 103,000, compared to a consensus estimate of +60,000. Both July and August payrolls were revised higher: the combined net revision was +99,000. The September unemployment rate was unchanged at 9.1%. These results will help allay near-term fears that the US economy is entering a recession.
PAYROLL SURVEY
September nonfarm payrolls rose by 103,000, compared to a consensus estimate of +60,000. This result included a 45,000 boost from Verizon workers returning from a labor dispute in August. Both July and August payrolls were revised higher: the combined net revision was +99,000. The net revision to private-sector payrolls was +42,000. The rest of the upward revision (+57,000) came from smaller than previously estimated losses in the government sector.
In terms of private-sector job creation, the underlying picture is not strong, but it is brighter than it was prior to today’s report. After factoring in the latest revisions, private job creation has averaged 105,000 per month since May. One of the key indicators that we are monitoring as a recession signal is the 6-month rate of growth in private payrolls. History shows that when this growth rate falls below +0.5%, the economy is either in recession or one is about to start. The 6-month growth rate now stands at +0.7% in September. This is down from 1.0% in April, but if private payrolls can continue to grow by at least 100,000 month going forward, then the +0.5% threshold will not be breached.
Aggregate hours worked in the private sector are another potential signal for recession that we are tracking closely. This measure takes into account not only jobs growth but also the average number of hours being worked each week. The average workweek dipped to 34.2 hours in August but returned to 34.3 hours in September. This helped keep the smoothed 3-month change in aggregate hours unchanged at +0.2%, still above our recession threshold of -0.2%.
Ongoing public-sector job cuts are a major negative for the labor market and for the economy in general. However, the reported pace of layoffs has flip-flopped between last month’s employment report and today’s. This is because large downward revisions to government payrolls in last month’s report have been replaced or offset by upward revisions this month. After last month’s report, the public-sector job losses appeared to be trending at -50,000 per month. After today’s report, the trend appears to be closer to -30,000 per month.
HOUSEHOLD SURVEY
Contrary to our expectations, the unemployment rate remained unchanged in September at 9.1%. We had expected an increase to 9.2%. Other data, particularly from surveys of consumer confidence, pointed to a deterioration in labor market conditions. In light of that, today’s report suggests that labor market conditions are holding up reasonably well. Consequently, we may see a slight improvement in consumer confidence in coming months.
In a positive sign, labor force participation picked up slightly to 64.2% from 64.0%. Though this is still lower than the 64.7% posted in September 2010, it at least suggests that the ongoing decline in labor force participation may be starting to abate. We should note, however, that an increase in labor force participation will slow any prospective decline in the unemployment rate.
The unemployment rate for adult men dropped slightly to 8.4% from 8.5%. The overall rate for teenagers fell as well, though it still remains quite high at 24.6% (down from 25.4%). The unemployment rate for adult women did edge higher to 8.1 % from 8.0%, and is the main reason why the overall unemployment rate did not fall in the month. The higher rate for women may reflect weakness in state and local government employment, especially for education workers.
While today’s data were better compared to our expectations, the overall labor market situation is still poor, especially when compared to other economic recoveries. The recession ended over two years ago in mid-2009. Monthly job gains this year, as measured by the household survey, have averaged only 91,000. In contrast, in 2003, the second year after the 2001 recession, monthly gains averaged 165,000. Monthly gains of less than 100,000 jobs will not be enough to bring down the unemployment rate, especially if the labor force participation rate starts to rise.
Bottom line:
Private-sector payroll growth was stronger than anticipated. For the time being, this means our indicators of recession derived from the job market are not being met. The deterioration in labor market conditions since April appears to have slowed down, but the overall unemployment rate still remains quite high. Improvements in the labor market will require much stronger growth in aggregate demand than seems likely in the near term.
HSBC Global Research