September Jobs Report – Is it Really Goldilocks?
September Jobs Report – Is it Really Goldilocks?
- Nonfarm payrolls came in just above expectations with 187 thousand new jobs vs. 170 thousand expected, but the prior two months were revised lower by 110 thousand jobs. That is six out of the last seven months with lower revisions, so keep that in mind when seeing today’s slight beat on the initial number. With revisions, the three-month average for job gains is down to 150 thousand. Per the Household Survey, unemployed persons increased by 514 thousand in August which lifted the unemployment rate from 3.5% to 3.8%, well above the 3.5% expectation. There’s more to that increase, however, so read on below. Job gains occurred in healthcare (71k), leisure and hospitality (40k), social assistance (26k), and construction (22k). Job cuts were in the transportation and warehousing sectors (34k), and temporary help services (19k).
- Wage gains returned to their moderating trend after a pickup in June and July with the MoM gain of 0.2% below the 0.3% expectation and down from July’s 0.4% increase. The year-over-year pace decreased to 4.3% vs. 4.4% the prior month and matched expectations. Average weekly hours ticked up a tenth to 34.4 hours, above the 34.3 hours expectation. Weekly hours peaked at 35.0 hours a year ago. All things considered, the moderation in wage gains in this report will be welcome news at the Fed, but they would still like to see that YoY number dip under 4% to reduce further the wage-price potential.
- As mentioned above, the unemployment rate rose three tenths from 3.5% to 3.8%, as the Household Survey reported an increase of 514 thousand in the ranks of the unemployed. However, the survey also reported the labor force grew by a healthy 736 thousand and 222 thousand found jobs. All-in-all, the pick-up in the unemployment rate is more about that significant increase in the labor force with many of those new entrants still looking for work at month end.
- The large increase in the labor force also boosted the Labor Force Participation Rate to 62.8%, two-tenths higher than expected and the highest since the pandemic began. The participation rate a decade prior to the pandemic averaged 63.3% while the average over the past year has been 62.5%. The increase to a new cycle high will be cheered by the Fed as it reflects an increasing pool of available workers which should moderate wage gains in the months ahead.
- All-in-all, the Fed will be cautiously optimistic that they are getting the soft landing with this report. The increase in the labor force, and slight decline in wage gains, will be cheered. But the trend of downward revisions, as reflected by the three-month average for job gains now down to 150 thousand, will have them thinking twice about another rate hike. To us, this looks like a labor market that is continuing to work off the momentum it had carried into the year. The question is, will the lagged effect of rate hikes continue to slow the labor market more dramatically? We think it could. In any event, it seals the deal on a pause in September, and if inflation continues to moderate the Fed’s hiking cycle could be over.
Monthly Change in Nonfarm Payrolls – Is that 187K Bound to be Revised Lower?
Agency Indications — FNMA / FHLMC Callable Rates
| Maturity (yrs) | 2 Year | 3 Year | 4 Year | 5 Year | 10 Year | 15 Year |
| 0.25 | 5.69 | 5.45 | 5.39 | 5.38 | 5.51 | 5.98 |
| 0.50 | 5.67 | 5.42 | 5.33 | 5.27 | 5.37 | 5.87 |
| 1.00 | 5.67 | 5.39 | 5.30 | 5.23 | 5.28 | 5.74 |
| 2.00 | – | 5.38 | 5.24 | 5.15 | 5.16 | NA |
| 3.00 | – | – | – | 5.10 | 5.10 | NA |
| 4.00 | – | – | – | – | 5.06 | NA |
| 5.00 | – | – | – | – | 5.02 | NA |
| 10.00 | – | – | – | – | – | NA |
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