Though it may be played as supporting a contention the economy is doing well, thank you very much, there’s really less positive news to the report that payroll jobs increased by 110,000 in September.
It certainly does not reflect any response to last month’s action by the Federal Open Market Committee in reducing the target Fed Funds rate to 4.75%, since that action was taken September 18 and the employment report – both the household survey (the unemployment rate) and the establishment survey (the number of payroll jobs) — covered the week including September 12.
Let’s see what happened in September, according to the Bureau of Labor Statistics:
· The number of payroll jobs increased by 110,000, but payroll jobs have grown by just 1.2% in the past year, the weakest annual growth rate in more than three years. The number of people working has increased by less than 1% in the same period while the working age population increased by 1.3%.
· The August report that the number of payroll jobs fell by 4,000 was revised to show an increase of 89,000 jobs. That swing of 93,000 jobs was virtually all due to a change in government jobs, which instead of falling by 28,000 in August as originally reported, are now said to have increased by 57,000.
· Perhaps the best news, perversely, is the increase in the unemployment rate, which grew to 4.7%, its highest level in a year. The uptick in the unemployment rate came as discouraged workers re-entered the labor force on the belief they could find jobs. To be classified as “unemployed,” an individual not only has to be out of work, but also has to be actively looking for a job, so that unemployment rose means more people are confident of finding work.
The positive – and positively spun – numbers, according to John Silvia, chief economist of Wachovia Bank, “take the recession risk out of the picture.” The economy, he said, “has moderated” but employment growth is concentrated in the service sector with more pain still to come in goods producing sectors: manufacturing and construction.
A big part of the story, too, was the revision to August’s numbers.
“We can’t redo history,” Silvia said, “but if you had these numbers a month ago, the Fed [Federal Open Market Committee] would have cut rates by 25 basis points [a quarter of a percentage point] instead of 50 basis points [half a percentage point].” The FOMC, he added, had to react to the psychological blow of a decline in payroll jobs as originally reported for August. As for the FOMC’s October 30-31 meeting, Silvia believes the policy makers will stand pat.
The preliminary numbers for September –- and given how the August numbers changed they must be seen as preliminary – don’t though suggest optimism for a consumption- based economy. Of the 110,000 new payroll jobs, 37,000 were government jobs, which don’t contribute to productivity.
Of the remaining 73,000 new private sector jobs, 26,000 were in industry sectors with average annual earnings of less than $24,000 a year. The number of jobs in higher paying industry sectors was virtually unchanged. While some higher paying job categories (health and education with average annual earnings of $31,000) improved, others (construction and financial sector) contracted.
That retail jobs fell by 5,200 (albeit out of a base of 15.4 million) is also another canary in the coalmine, as retailers would not cut staff if sales were strong – and remember, we’re a consumption- based economy.