Economics

Unemployment Rate Hits Five-Decade Low

Unemployment falls to 3.5 percent despite a slowdown in hiring.

Robert Spendlove and Joseph Mayans Oct 4, 2019

The U.S. labor market continues to be the backbone of the economy even as other economic indicators are pointing toward a slowdown. In September, employers added 136,000 jobs and the unemployment rate fell to 3.5 percent. While the pace of hiring has slowed over the course of the year, the unemployment rate has fallen steadily and now sits at the lowest level in five decades. Additionally, the broader measure of underemployment – which counts those in part-time work looking for full-time work and discouraged workers - fell to 6.9 percent in September, which is near a 20-year low. One point of concern in the report is the decline in annual wage growth, which slid from 3.2 percent to 2.9 percent.

Lowest unemployment rate in 50 years

Top Takeaways from the Report

Ultra-low unemployment steadies a wobbly labor market

The surprise decline from 3.7 percent to 3.5 percent in September’s unemployment rate was the standout point from what was otherwise a wobbly report. Employment growth in the U.S. continues to slow and September’s addition of 136,000 jobs was the smallest gain since May. And while hiring was revised upward by a combined 45,000 jobs in July and August, average job creation remains about 60,000 lower per month in 2019 than during the same period in 2018. Additionally, the lackluster wage growth is a bit concerning, given that many economists anticipate a boost in wages to coincide with falling unemployment.

However, even as employment growth has slowed, the long duration of the current expansion has allowed more individuals to find employment. With the unemployment rate at a 50-year low, and underemployment near 20-year lows, populations which are typically underserved are seeing improvement. The unemployment rate for individuals 25 and over with less than a high school education fell to the lowest level on record at 4 percent. The Hispanic unemployment rate declined from 4.2 percent to 3.9 percent, also the lowest on record. And the unemployment rate for African Americans remained tied for its all-time low at 5.5 percent.

The Federal Reserve remains likely to cut interest rates before the year is over

In September, the Federal Reserve cut interest rates to a range between 1.75 – 2 percent, in order to support a weakening economy. Since then, more bad news has been reported which shows the trade war with China and slowing global growth are starting to hamper the U.S. economy. According to the latest report from the Institute for Supply Management (ISM), activity in the manufacturing sector contracted to the lowest level since June 2009. In another survey, ISM pointed to a slowing service sector, which is a sign that the weakness in manufacturing could be spreading to other parts of the economy. Additionally, consumer confidence slid sharply in September, with consumers growing increasingly worried about the current conditions. All told, September’s employment report didn’t change the overall narrative that the U.S. economy is slowing. 

Growth by Select Industry

Education and health services added the most jobs in September. Most of the gains were in the health care sector, which added 38,800 jobs.

Manufacturing employment declined by 2,000 jobs in September. The sector has been particularly hard hit by the trade war with China. Through September of this year, the sector has added an average of 4,600 jobs per month versus 20,900 added per month during the same period in 2018.

After a big gain last month from Census Bureau hires, federal government hiring was muted in September. Most of the job creation was seen at the state and local levels, which combined to add 24,000 jobs.

The Bottom Line

September’s report may be the last solid jobs report of the year. Despite the unemployment rate falling to a 50-year low, the slowdown in hiring shows no abatement and will likely become amplified by broader economic conditions. Look for the Federal Reserve to cut interest rates at least once before 2019 comes to a close.

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The division of Economics and Public Policy at Zions Bank informs and educates employees, clients, and the community-at-large by providing insight and analysis on issues related to local, national and global economic trends as well as federal banking policies. The primary goal of the Economic and Public Policy team is to help individuals and businesses understand important issues that can impact their daily financial decisions. For more information and analysis, please visit www.zionsbank.com/economy.

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