Disappointing Jobs Growth For September
A somewhat disappointing jobs report for September.
With the economy sending mixed signals about its future direction other than to make clear that a recession within the next year seems unlikely, Wall Street traders, politicians, and analysts have been looking to the Jobs Report to give us an idea on where the economy might be headed, at least in the short-term. Throughout most of 2018 we experienced solid, albeit not spectacular, jobs growth, which led many analysts to wonder if we had entered a new phase of “full employment” where jobs growth would slow down somewhat as employer and employees both assess that we’ve reached a point where new job opportunities are going to be rarer than they were when the post-Great Recession recovery was still young. Additionally, many analysts have turned their attention away from the employment numbers themselves and are paying attention to wage growth, which has remained somewhat stagnant in a range of 2.5% to 3.0% annual growth for the past several years.
The new year, though, seemed to open with a bang thanks to a much better than expected January jobs report that defied even being impacted by the five-week government shutdown that did not end until late January. That enthusiasm was scaled back to some degree in February, which saw largely disappointing jobs numbers during the shortest month of the year. Things bounced back in March, though, with the Department of Labor reporting the creation of 196,000 jobs, although the unemployment rate itself remained stable. There were also some slight upward revisions for January and February, but nothing substantial. In April, we ended up with stronger than expected jobs growth as well as some continued positive signs of wage growth, which had been lagging for much of 2018. Then came May with a report of much lower than expected jobs growth numbers, which actually caused stock markets to rise at the time in hope that it would spur interest rate cuts from the Federal Reserve Board. Continuing with the see-saw effect we’ve seen in the report all year, though, June bounced back with higher than expected jobs growth while the topline unemployment number remained unchanged. After that, the July report came in slightly higher than expectations as the topline U-3 unemployment rate remained unchanged. Finally and most recently, the August report came in with a disappointing and below estimates additional 130,000 jobs for the last full month of summer.
Heading into today’s release of the July jobs report, though, the expectation was that we would see the jobs market stay within the 2019 average with the creation of roughly 145,000 new jobs which would be roughly consistent with the month’s job creation figures from ADP, whose report indicated that 135,000 new jobs had been created during the month. As it turned out, we ended up with another month where job creation again fell below expectation while the top-line unemployment rate hit a rate unseen in 50 years:
The unemployment rate declined to 3.5 percent in September, and total nonfarm payroll employment rose by 136,000, the U.S. Bureau of Labor Statistics reported today. Employment in health care and in professional and business services continued to trend up.
This news release presents statistics from two monthly surveys. The household survey measures labor force status, including unemployment, by demographic characteristics.
The establishment survey measures nonfarm employment, hours, and earnings by industry.
In September, the unemployment rate declined by 0.2 percentage point to 3.5 percent. The last time the rate was this low was in December 1969, when it also was 3.5 percent. Over the month, the number of unemployed persons decreased by 275,000 to 5.8 million. (See table A-1.)
Among the major worker groups, the unemployment rate for Whites declined to 3.2 percent in September. The jobless rates for adult men (3.2 percent), adult women (3.1 percent), teenagers (12.5 percent), Blacks (5.5 percent), Asians (2.5 percent), and Hispanics (3.9 percent) showed little or no change over the month. (See tables A-1, A-2, and A-3.)
Among the unemployed, the number of job losers and persons who completed temporary jobs declined by 304,000 to 2.6 million in September, while the number of new entrants increased by 103,000 to 677,000. New entrants are unemployed persons who never previously worked. (See table A-11.)
In September, the number of persons unemployed for less than 5 weeks fell by 339,000 to 1.9 million. The number of long-term unemployed (those jobless for 27 weeks or more) was little changed at 1.3 million and accounted for 22.7 percent of the unemployed (See table A-12.)
The labor force participation rate held at 63.2 percent in September. The employment-population ratio, at 61.0 percent, was little changed over the month but was up by 0.6 percentage point over the year. (See table A-1.)
Total nonfarm payroll employment increased by 136,000 in September. Job growth has averaged 161,000 per month thus far in 2019, compared with an average monthly gain of 223,000 in 2018.
In September, employment continued to trend up in health care and in professional and business services. (See table B-1.) In September, health care added 39,000 jobs, in line with its average monthly gain over the prior 12 months. Ambulatory health care services (+29,000) and hospitals (+8,000) added jobs over the month.
Employment in professional and business services continued to trend up in September (+34,000). The industry has added an average of 35,000 jobs per month thus far in 2019, compared with 47,000 jobs per month in 2018.
Employment in government continued on an upward trend in September (+22,000). Federal hiring for the 2020 Census was negligible (+1,000). Government has added 147,000 jobs over the past 12 months, largely in local government.
Employment in transportation and warehousing edged up in September (+16,000). Within the industry, job growth occurred in transit and ground passenger transportation (+11,000) and in couriers and messengers (+4,000).
Retail trade employment changed little in September (-11,000). Within the industry, clothing and clothing accessories stores lost 14,000 jobs, while food and beverage stores added 9,000 jobs. Since reaching a peak in January 2017, retail trade has lost 197,000 jobs.
Employment in other major industries, including mining, construction, manufacturing, wholesale trade, information, financial activities, and leisure and hospitality, showed little change over the month.
In addition to the numbers above, the Bureau of Labor Statistics reported that total nonfarm payroll employment for July was revised upward from +159,000 to +166,000 and the number for August was revised upward from +130,000 to +168,000. These revisions made for a net upward revision of +45,000 for those two months. Combined with this month’s jobs numbers, this puts the average jobs growth for the past three months at +156,667 net jobs created per month, which is a slight increase from the previous three-month average.
Based on these new numbers, we’ve seen total job growth in 2019 of 1,452,000 jobs created, for an average of + 161,333 jobs created per month so far this year. By way of comparison, 2018 saw 2,024,000 new jobs created in 2018 as a whole for an average of +161,333 net new jobs per month. Combined with the final jobs numbers for 2017 and 2018, this means we’ve seen a total of 4,404,000 new jobs created since January 1, 2017, a period that has largely coincided with Donald Trump’s tenure as President, for a monthly average over that period of +133,455 new jobs created, which is a slight increase from where this average stood as of last month and roughly similar to what we saw during the final four years of the Obama Administration.
During his campaign for President, Donald Trump promised to create 25,000,000 jobs during his Presidency. That would require the creation of 3,125,000 per year over an eight-year term for an average of 261,000 new jobs per month. Over a four-year term that would require 6,250,000 per year, for an average of 521,000 new jobs per month. Based on the average growth rate we have seen since the start of 2017 it would take nearly sixteen years to reach that goal. Based on the average for 2019 to date, it would take roughly thirteen years to reach that goal. Based on the average for the past three months, it would also take roughly thirteen years to reach Trump’s goal. All of this, of course, assumes that we don’t have even a mild recession during that period. Needless to say, it is unlikely that we’re going to see sustained average jobs growth over the next three to seven years that would put us close to the President’s goal absent a significant change in the nature of the jobs market.
Looking deeper into the numbers, the average workweek across the board was unchanged at 34.4 hours while average hourly earnings fell one cent to $28.09. Over the year, average hourly earnings have risen at an annualized rate of 2.9%. This below the annualized rate we saw during the summer but it is still a stronger wage growth number than we’ve seen for most of the year, and it’s consistent with the increase we saw last month. It’s worth noting, though, that it comes off several months when wage growth was essentially stagnant, so this may just end up being a statistical blip.
As I’ve said before, the relatively slow growth we’ve seen in wage growth could be a sign we’re hitting an equilibrium point in the jobs market that will preclude big jumps in either hiring or hourly earnings on a sustained basis. Looking at other numbers, labor force participation, the long-term unemployment rate inched downward but was relatively stable compared to earlier in the year.
Patricia Cohen at The New York Times offers the takeaways:
The cavalcade of payroll gains continued for the 108th month in September, pushing down the jobless rate to a 50-year low and countering anxieties that had been piqued by slowing global growth, declining factory orders and a jittery stock market.
The government’s latest monthly jobs report took on added significance after a week of otherwise disappointing economic news. Manufacturing activity in the United States fell for the second month in a row, while the World Trade Organization predicted that the growth in global trade would slacken significantly. A key measure of activity in the services sector — which accounts for two-thirds of the country’s output — also cooled.
Still, employers kept hiring at a steady if unremarkable pace.
“It’s great news to hit a record low on unemployment,” said Diane Swonk, chief economist at Grant Thornton, but noted that “the disappointment was wages.”
Clearly, the economy’s employment engine has lost some of its spark. Last year, an average of 223,000 jobs were created each month, thanks in part to the temporary pick-me-up delivered by tax cuts and increased government spending. This year, the monthly average through September is 161,000.
That falloff alone is not cause for alarm. A decline was expected now that the recovery has passed its 10-year anniversary, and there are more job postings than job seekers. The unemployment rate has remained below 4 percent for the last seven months. And many Americans who had dropped out of the labor force because they were too discouraged to look for work or couldn’t find sufficiently attractive offers have now rejoined.
Still, the jobs report contained enough conflicting data that optimists and pessimists could find evidence to support their outlook.
Carl Tannenbaum, chief economist at Northern Trust, described the latest report as reassuring. “All of us have been on edge a little bit with declines on readings in the service sector, fearing that the trade problems would jump the fence from heavy to lighter industries,” he said.
The Washington Post meanwhile speculates on the possible connection between another month of lower than expected jobs growth and President Trump’s trade war:
The National Retail Federation warned Thursday that economic uncertainty, new tariffs and fluctuations in the stock market could derail Americans’ spending plans in the run-up to the holidays.
“Payroll growth is down considerably this year,” said Nick Bunker, an economist at the jobs site Indeed. “At the same time we’re seeing wage growth isn’t picking up, despite some people’s hopes, and is declining. Those two trends are a sign that is a labor market that is slowing down. Not because we’re hitting full employment, but rather this is a slowdown for employers and a slackening in economic growth.”
And economists point to other signs, including a manufacturing recession as affecting employers as they struggle to find workers in a tight jobs market.
Some other sectors performed much better, however, as health care and business services added more than 70,000 jobs combined.
While these numbers are positive, the fact that we came in under expectations is something worth paying attention to. Additionally, it’s worth noting that we’ve only seen one month so far this year when jobs growth has been about 200,000 new jobs. Additionally, average jobs growth this year is far below where it was in 2018 or 2017, suggesting that the jobs sector, typically a lagging indicator of the state of the economy, is slowing down. Among other things, this means that we can expect jobs growth further down the line to slow down or at least not significantly increase from the levels we’ve seen over the past several years.
It also means that we should be seeing better wage growth than what we have been seeing so far as employers do what they can to keep employees from straying elsewhere. One of the reasons that may not be happening is that employers may be incentivizing workers through means not measured by wage growth such as better benefits and other enhancements to the working environment. An additional factor at play here is increased productivity due to increases in the use of technology that make a longer workweek or increased hiring unnecessary.
As we get further into the 2020 election cycle, of course, numbers such as this will become more significant. We’ve already begun to see signs of economic slowdowns in the manufacturing and global trade segments of the economy and that is reflected in the most recent jobs numbers. Other areas showing signs of downturn include the retail industry, which has been losing jobs all year. Whether this is a precursor of an impending downturn is as yet unclear, but it’s something that the Federal Reserve Board, in particular, is keeping an eye on as it formulates policy. In addition to these statistics, it is worth noting that President Trump’s job approval on the economy, which had previously been extremely positive has dropped significantly. If the economy continues to slow down and starts hitting consumers and workers more directly, it could be a problem for Trump and the GOP heading into 2020.