September Employment Growth Slows

Today’s nonfarm payrolls report finally arrived, but it wasn’t worth the wait. Private-sector employment increased by a net 126,000 jobs last month on a seasonally adjusted basis, according to the US Labor Department. That’s not the slowest pace this year, but it’s close. Only July’s meager 100,000 rise is lower so far in 2013. There’s nothing to cheer about in today’s employment release, but it’s still not obvious that the jig is up for the business cycle. True, the latest monthly perspective looks discouraging, but that’s not the only statistical lens at our disposal. Consider that the year-over-year percentage change for private-sector employment continued to expand by just over 2% through last month. That rate is unchanged from the previous month and is in line with the annual pace of growth we’ve seen so far this year.

Nonetheless, the best you can say about the labor market at the moment is that it’s growing modestly. Perhaps today’s update is an early warning that the trend is set to deteriorate in the months ahead. Maybe, but at this point that’s just speculation fueled by looking at last month’s estimate alone.

It’s well known that the monthly numbers for payrolls are sufficiently volatile to inspire taking each data point with a grain of salt. Between revisions and the standard noise that infects this series in the short term, it’s hard to say much of anything by looking at monthly comparisons. This caveat is routinely ignored in the rush to find drama in the data du jour.
The annual trend, by comparison, is moderately more reliable for assessing business cycle risk. The good news is that nothing much has changed with this benchmark in September vs. what we’ve seen in recent history. That said, there’s still reason to wonder if the labor market is headed for a rough patch or worse. For instance, last week’s jobless claims report wasn’t all that encouraging, even though the latest number fell.
Meanwhile, yesterday’s update of the monthly US Economic Profile remains upbeat, but this too could be a head fake because we’re still missing several key indicators due to the government shutdown from earlier this month. One of those numbers is finally here, although it isn’t all that helpful other than to suggest that labor market growth in September was soft. Keep in mind too that some of last month’s downshift in growth for payrolls may be partly related to rising uncertainty in September as the threat of a government shutdown, and the possibility of a Treasury default, inched closer.
In any case, the outlook for the economy remains muddled at the moment, in part because we’re still waiting for numbers that should have already been published. But clarity, at least in relative terms, is coming. Next week, for instance, we’ll see the delayed September numbers for industrial production (Monday, Oct. 28) and retail sales (Tuesday, October 29). More data is headed our way, although for now there’s still a fair degree of uncertainty about what we’ll see.