September Jobs Report: Unemployment Drops to 49-Year Low
Unemployment declines to 3.7 percent; 134,000 jobs added
The U.S. unemployment rate fell to 3.7 percent in September - the lowest level since 1969. To put that into perspective, the last time unemployment was this low Neil Armstrong and Buzz Aldrin had just taken the first steps on the moon; the internet was still in its early stages of development; gasoline was $0.35 a gallon; and the Dow Jones Industrial Average was at 800 (vs 26,000 today). In September of 1969, the U.S. economy was near the end of the longest economic expansion on record (at the time), which ended at 106 months in December of that year. Unlike 1969, however, our current economic expansion is at 111 months and judging by many economic indicators, still has room to run.
In addition to unemployment declining from 3.9 percent to 3.7 percent in September, the U.S. labor market added 134,000 jobs. While this was fewer-than-expected, upward revisions for both July and August, suggest employment growth remains solid. September’s job gains mark eight years of consecutive employment growth. While the official unemployment rate ticked down, the broader underemployment rate rose slightly from 7.4 percent to 7.5 percent. Annual wage growth, which saw a jump in August to 2.9 percent, took a step back in September rising 2.8 percent. The labor force participation rate remained level at 62.7 percent.
Top Takeaways from the Report
“Remarkably positive outlook”
After the Federal Reserve increased the federal funds target range to 2.0 - 2.25 percent, Fed Chairman Powell gave several interviews on the state of the economy. When discussing the current economic conditions, particularly the unusual period of low unemployment and low inflation, he said that the Fed had a “remarkably positive outlook” on the economy and that conditions were “not too good to be true.” Historically, low unemployment and low inflation do not coexist for long periods of time. This is because wage inflation and other inflationary pressures pick up when unemployment is low. However, the recent period has been somewhat of an exception to that rule, and September’s employment report continues that trend - with lower unemployment and relatively modest wage growth at 2.8 percent.
For much of 2017 and 2018 we have seen the continuance of major trends, namely: falling unemployment, modest wage increases, and stagnant labor force participation, all of which are showcased in September’s report. While the unemployment rate fell more-than-anticipated from 3.9 percent to 3.7 percent, wage growth actually declined slightly from 2.9 percent to 2.8 percent. This trend has many calling this period a “wageless” recovery. The lack of wage growth could be one of the reasons why labor force participation – the percent of individuals working or looking for work – has failed to rise significantly over the past several years. There are many large demographic trends facing participation rates, including the retiring of baby boomers, and more time spent in school, but without improvement in wages it will be hard to attract more workers off the sidelines.
Growth by Select Industry
- Professional and business services added 54,000 jobs in September. The sector has added an average of 46,000 jobs since the start of 2018, and 560,000 over the past year.
- Construction employment rose by 23,000, mainly driven by a rise in specialty trade contractors. The sector has added 315,000 jobs over the past year.
- After a stumble in August, employment in the manufacturing sector rose by 18,000 jobs in September. The sector has added 278,000 jobs over the past year.
- The Bottom Line – The U.S. labor market continues to expand at a modest and stable rate. After adding 134,000 jobs in September, the U.S. has hit eight years of consecutive job growth. While this report is in keeping with previous trends, it is exactly what the Fed is looking for – growth without inflation.
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