NAROFF ECONOMIC ADVISORS, Inc.
Joel L. Naroff
President and Chief Economist
INDICATOR: September Employment Situation
KEY DATA: Payrolls: 103,000; Private Sector: 137,000; Government: -34,000; Unemployment Rate: 9.1% (unchanged)
IN A NUTSHELL: “Better than expected is nice but we need employment gains to grow a lot faster if the unemployment rate is to come down.”
WHAT IT MEANS: Well, the sky is not falling just yet. Businesses continue to add workers and it is hard to see how we could be in recession if payrolls are growing. Still, the job gains in September were not great. The private sector’s increase was bloated by a return of about 45,000 striking communications workers. They were considered off the rolls in August. A strong gain was posted in the construction sector as nonresidential activity picked up solidly. Let’s wait to see if this is a trend. Retail, telecommunications, health care and professional services all were up. On the other hand, manufacturers became more conservative and cut their workforces a touch. The uncertainty about the world economy seems to be trumping solid order growth. Finance, transportation and wholesaling were also off. But the big negative was government workers, especially local education. Meanwhile, state governments added workers. And I thought it was the state governments that were having fiscal problems. The number of people finding positions was not enough to lower the unemployment rate, which remained at a way too high 9.1%. A rise in the labor force, which I have noted in the past is a sign of growing confidence, offset a rise in employment. The trend in job growth may be changing. Both the July and August numbers were revised upward, by a total of almost 100,000, and that may indicate there is some acceleration in hiring going on. Also, hours worked and wages rose so income gains have improved.
MARKETS AND FED POLICY IMPLICATIONS: It’s incredible how low our sights have been set. The idea that 103,000 workers being added in one month is good and should buoy investors is depressing. We need to be seeing job gains in the 200,000 range. But to get there the public sector has play its part, or at least stop getting so much in the way. In past recoveries, we might have had 25,000 jobs added, a swing of about 60,000 in the September total. In addition, home construction, a huge driver of job gains, needs to improve. With construction weak and government negative, the chances of getting back to strong payroll growth in the near future are not great. I see that happening, but closer to next spring when government layoffs should ease and construction may be somewhat better. Still, the markets should like this number, if investors can see past Greece and the downgrades of European banks. This is not a report that will tell the Fed that Operation Twist (the Fed calls it a “maturity extension program”) is unnecessary. Indeed, it only reinforces the view that with government cutting back, monetary policy is the only tool left to bolster growth.
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