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September Employment Report Paints A Muddled Picture

Posted October 8, 2021 at 9:30 am
Patrick J. O’Hare

The futures market was trading with a positive, but hesitant, tone in front of the September Employment Situation report, showing little reaction to the news that the Senate voted along party lines to approve a $480 billion increase in the debt limit until December 3.

That vote wasn’t surprising, as it was factored in with the rebound-minded action seen on Wednesday and Thursday following reports that there was a pathway to an agreement on a short-term extension. The House is expected to vote on the debt ceiling extension on Tuesday. It is expected to pass there.

It hasn’t been lost on market participants, though, that Republicans and Democrats will be playing another game of political chicken in less than two months when the debt ceiling and government funding measures need to be addressed yet again at the same time. Accordingly, there has been a measured response to the latest agreement.

The reaction to the September employment report, meanwhile, has been a muddled one because the report itself was muddled.

Nonfarm payrolls increased by a disappointing (and weak) 194,000, the unemployment rate dropped to 4.8%, average hourly earnings jumped 0.6%, and the labor force participation rate dropped to 61.6%.

The key takeaway from the employment report isn’t singular. There are multiple interpretations:

  • The nonfarm payrolls number might be weak enough for the Fed to defer a tapering announcement past November.
  • The private sector payrolls number (317,000), which eliminates the drag of a large drop in government workers (-123,000), may be good enough to convince the Fed to move ahead with a tapering announcement in November.
  • Concerns about labor market stagflation will be fueled by the sizable increase in average hourly earnings and the tepid increase in nonfarm payrolls.
  • The drop in the labor force participation rate suggests the expiration of enhanced unemployment benefits didn’t convince former recipients to look for work.

Still, if we had to narrow down one takeaway from the report, it would be this: it will feed an ongoing sense of uncertainty about the state of the labor market and the state of the Fed’s policy course.

Other notable headlines from the Employment Situation Report are as follows:

  • September nonfarm payrolls increased by 194,000 ( consensus 450,000). The 3-month average for total nonfarm payrolls decreased to 550,000 from 806,000 in August.
    • August nonfarm payrolls revised to 366,000 from 235,000
    • July nonfarm payrolls revised to 1,091,000 from 1,053,000
  • September private sector payrolls increased by 317,000 ( consensus 385,000)
    • August private sector payrolls revised to 332,000 from 243,000
    • July private sector payrolls revised to 816,000 from 798,000
  • September unemployment rate was 4.8% ( consensus 5.1%), versus 5.2% in August
    • Persons unemployed for 27 weeks or more accounted for 34.5% of the unemployed versus 37.4% in August
    • The U6 unemployment rate, which accounts for unemployed and underemployed workers, was 8.5%, versus 8.8% in August
  • September average hourly earnings increased 0.6% ( consensus 0.4%) versus a downwardly revised 0.4% increase (from 0.6%) in August
    • Over the last 12 months, average hourly earnings have risen 4.6%, versus 4.0% for the 12 months ending in August
  • The average workweek in September was 34.8 hours ( consensus 34.7), versus 34.6 hours in August
    • Manufacturing workweek was unchanged at 40.4 hours
    • Factory overtime was up 0.1 hour to 3.3 hours
  • The labor force participation rate was 61.6%, versus 61.7% in August
  • The employment-population ratio increased to 58.7% from 58.5% in August.

The equity futures market and the Treasury market seem to be reflecting the state of confusion (if not shock) about how to interpret the September employment data. The 10-yr note yield sits at 1.57%, little changed from where it was just before the release, and the S&P 500 futures are up eight points, or 0.4% above fair value, which is where they were just before the release.

There is a lot to unpack with this employment report, however, so it is advisable not to read too much into the early indications.  

Originally Posted on October 8, 2021 – September Employment Report Paints A Muddled Picture

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