The Corner

Economy & Business

The Whacky September Job-Growth Numbers

Investors need to take all of today’s employment report with a big grain of salt. That includes the negative news on jobs and the positive news on wages. And that goes for next month’s report, as well, when we should see a big reversal in these numbers, with a surge in payrolls and relative weakness in hourly wage growth.

The numbers on job growth were downright whacky. Nonfarm payrolls dropped 33,000. If this holds up through revisions, it’ll be the first decline since 2010 and was much weaker than the consensus expected. However, civilian employment, an alternative measure of jobs that includes small-business start-ups, rose 906,000 in September.

Our first guess would be that the unusually large gap between the two surveys is due to the timing of Hurricane Irma, which hit the U.S. right at the beginning of the payroll survey week. But the civilian-employment report also says that 1.47 million workers missed work due to weather, the most for any month since the double-whammy of massive East Coast snowstorms in January 1996. In other words, the civilian employment report apparently did get affected by the storms and still rose sharply!

The surge in civilian employment helped drive the jobless rate to 4.2 percent, the lowest since 2001. Perhaps the best news for September was that average hourly earnings rose 0.5 percent and are up 2.9 percent versus a year ago. However, with payrolls dropping the most for relatively low-wage workers (restaurants and bars), the surge in wage growth should unwind next month.

The one measure we follow closely that should not have been affected by the storms is total earnings, which combines the total number of hours worked (which were held down by the storms) and average hourly earnings (which were boosted by the storm). Total earnings rose a healthy 0.4 percent in September and are up 4.3 percent from a year ago, signaling plenty of growth in consumer purchasing power.

A month ago, the market’s odds of a December rate hike were about one-in-three. At the time, we said we thought the odds should be more like 75 percent. Today, the market’s odds are up to 80 percent and we think that’s about right. And if the economy keeps growing at the recent pace, the odds of a December rate hike will only go higher. That’s especially true if Washington gets its act together and finds a way to quickly pass tax cuts or tax reform.

Robert Stein is an economist for an asset-management firm and a former deputy assistant Treasury secretary for macroeconomic analysis.


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