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September Jobs Report – More Porridge for Goldilocks

Market Intel / October 9, 2019

At 136,000 new jobs created, according to the establishment side of the September jobs report released October 4, this was another “just right” report. Expectations for the report ran somewhere in the 145,000 range, so 136,000 was slightly below expectations, but not enough to cause concern. From the other direction, the number by itself was not high enough to lead us to think the economy is heating up. The wage data helped to confirm this by showing a 3.5% increase over a year ago. Again, nice, but nothing concerning in either direction.

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Don’t forget; the jobs report is effectively a combination of two surveys. One talks to establishments – that’s where the 136,000 number came from – and the other with households. The establishment survey talks about how many jobs were either created or destroyed in a given month. It does not care if five people left work in Pokiske to be replaced by a different five in Toledo. In that example, there would be no net new jobs created, and thus the job number would be zero. If you were one of the five in Pokiske, you would think the economy was collapsing. If you were one of the five in Toledo, you would think the economy was doing great. That’s the difference between the establishment survey and the household survey.

The household survey is where we get unemployment percentages. This month, for example, the unemployment figure dropped to 3.5%. We added 117,000 people to the workforce, the number of employed people went up by 391,000 and unemployment fell by 275,000. This kind of report makes you think the economy is doing just fine, thank you. The number of people in the workforce expands; the number of jobs grows by more than the number of people entering the workforce, lowering the unemployment rate. Unemployment rates can fall just because people quit looking for work even in the face of a decline in the number of jobs. But this report was the complete opposite.

That’s the good spin on the report. Whenever a report is ‘just right,’ however, it usually means there are parts that are not so good.

Let’s go back to the establishment part of the survey and dig a little there. Of the 136,000 new jobs, health care added 38,800 new slots. Since the start of the year, this sector has accounted for nearly a quarter of all new jobs created and nearly 11% of all jobs, period. A gig sector showing strong growth is a good story for overall employment numbers. Local governments added 14,100 positions, and state governments added a further 10,000. Between health care and state and local governments, we’ve accounted for almost half (47%) of the new jobs created in September.

Retail trade employment is down for eight months in a row and a full 11,400 positions in September. Manufacturing employment is also down, but only by 2,000 positions. The rest of the list are all a few more here, a few less there for net gain of 72,000 positions across all the other sectors of the economy, from hotels to real estate, from truck transport to computer techs.

Again, headline numbers again are okay, but just. Everything moving in the right direction in the household survey, but take a deeper dive into the establishment numbers, shows a softness in several parts of the economy.

Enough to drive the Federal Reserve to drop interest rates again? Depends on their prejudices. One could point to the household survey and say the economy is doing well, leave it alone. Or they could point to parts of the establishment survey, talk about a potentially slowing economy and act. Flip a coin — a highly involved economics tool.

Bob Young
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