Fall in Unemployment Rate Inconsistent With Muddle Through Economy

By TJ Kim

October 5, 2012

Last Friday, Bureau of Labor Statistics (BLS) released a report on Employment Situation for September. The unemployment rate came out at 7.8%, the lowest reading since President Obama took office in 2009. The result outperformed the consensus by 0.3%.

Employment Situation for August worried many because of the decline in civilian labor force along with lower labor participation rate than July. However, the Household survey for September showed that both labor force and labor participation rate rebounded back to 155,063,000 and 63.6%, respectively. Michael Gapen from Barclays wrote in Instant Insights,

“The household survey took on a markedly stronger tone than the establishment survey, with an 873k gain in employment. The labor force participation rate rose a tenth to 63.6%, meaning the decline in the unemployment rate to 7.8% (7.796% unrounded) from 8.1% was driven by employment growth and not discouraged workers leaving the labor force. The household survey is a volatile series and we prefer to look at longer term trends to gauge the health of the labor market. The 3mma change in employment in the household survey is 186k and 146k in the establishment survey. Both are consistent with the average pace of employment growth in 2011 and 2012 and suggestive of a labor market that has normalized following a rise in uncertainty related to the debt crisis in Europe. It is unclear whether employment growth will accelerate from here given the uncertainty about the global growth backdrop and the resolution of the fiscal cliff.”

With regard to non-farm payrolls, September added 114,000 payrolls, fewer than August’s data. Largest contributors were from Education and health services, Financial activities, and Transportation and warehousing.

“The composition of private job growth in the September payroll report was similar to that seen in August, where good-producing sectors lost 10k jobs, driven mainly by a decline of 16k in manufacturing payrolls. We see the decline in manufacturing payrolls as reflecting the softness in global growth and a weaker export profile. Manufacturing had posted gains in 10 of the 11 months prior to the August employment report. Private services payrolls rose by 104k with trade and transport (25k), education and health (49k), financial services (13k), and business services (13k) comprising a bulk of the increase. Government payrolls expanded by 10k in September and revisions resulted in gains to public sector payrolls to both August (45k) and July (18k). This represents the first time government sector payrolls expanded for three consecutive months since the census hiring in 2010 and signals to us that the belt-tightening of state and local governments is starting to ease.”

In Hours and Earnings data, Aggregate Weekly Hours rose by 0.1 to 103.7 points. both Average Weekly Earnings and Average Monthly Earnings rose by $.05 and $1.69, respectively.

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