Why the jobs data is more upbeat than it suggests
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Job creation was minimal in September and weaker over the summer than was thought, according to the federal employment report released Friday — taking some of the apparent buoyancy out of the labor market picture.
Why it matters: This is one of those instances where the data tells us more about what isn't happening than what is.
- And the labor market decidedly doesn't look to be heating up — certainly not in a way that might compel more aggressive monetary tightening by the Fed.
- Under the hood, the data on the September job market is more mixed — and in some ways even more optimistic — than gloomy headlines this morning might suggest.
By the numbers: Employers added 29,000 jobs in September, well short of the 84,000 analysts had expected. The Bureau of Labor Statistics also revised July and August numbers down by 60,000 jobs.
- Tally it up and the three-month average is 51,000 jobs added a month, well below the pace in the spring.
- The unemployment rate, meanwhile, ticked up to 4.2%, from 4.1%. The silver lining there is that it was for good reasons: more Americans looking for work.
- The labor force participation rate and the employment-to-population ratio both ticked up.
Reality check: Job growth is a hard data point to parse right now because nobody is quite sure what it should be — what steady-state, full-employment payrolls growth would look like given the volatile immigration policy.
- Meanwhile, the rise in labor force participation helps assuage worries from earlier in the year that prime-age adults were skipping out of the workforce entirely.
What they're saying: "Not every increase in the unemployment rate is a warning," Jason Pride of Glenmede wrote in a note, adding that "this one in particular reads as a sign of confidence rather than distress."
- "After spending most of this year at the low end of the range consistent with full employment, a tick higher in the unemployment rate matters far less than the reason behind it, and workers choosing to come off the sidelines is an encouraging signal about how they view their prospects."
Zoom out: Put it together, and the overall picture that the September numbers paint is one of a labor market in balance — or in other words, one that is neither falling apart nor at much risk of overheating.
- There have been hints that the job market was reaccelerating earlier this year. That no longer looks to be the case — rather it is just rumbling along steadily in the background while other economic headlines draw attention from markets and the Fed.
- In an environment of elevated inflation, surging energy costs, rising long-term interest rates and pressure on the Fed to do something about it, labor market stability is at least one less thing to worry about.
Even before the soft September numbers, Fed leadership was sending clear signals that they are disinclined to raise interest rates again at a meeting late this month.
- The absence of labor market tightening likely affirms that view.
Catch up quick: Fed vice chair Philip Jefferson said yesterday that coming to a judgment about further rate hikes "may take more time."
- He spoke of the value of waiting to have "more data in hand" before making another move.
- Those comments came on the heels of New York Fed president John Williams saying earlier in the week that thanks to the September rate hike, "there is no need for urgency, and we have time to gather more information."
- "The accumulation of more data should provide greater clarity on the underlying trends in the economy and the associated risks to achieving our goals — and thereby the appropriate setting of monetary policy," Williams said.
Between the lines: The vice chair and New York Fed chief traditionally serve as part of a leadership triumvirate (along with the Fed chairman) on monetary policy matters, so their words carry extra weight.
- While chairman Kevin Warsh had no role in selecting either Jefferson or Williams, and it's been an open question how the Fed's leadership might evolve under his chairmanship, it's hard to imagine Jefferson and Williams freelancing with such explicit near-term policy signals.
- Rather, this looks like a coordinated effort to pump the brakes on market expectations of a late October rate hike, a direction that is even more justifiable given the absence of labor market tightening seen in today's data.
The bottom line: The Fed is more laser-focused on inflation right now than the job market, and September inflation data is still to come. But the soft job growth numbers, negative revisions, and uptick in unemployment all point to patience on rate hikes.
