The headline figures from the September jobs report were better than expected. However, the details were more consistent with moderate growth and a continued high degree of slack. Fed officials aren’t going to jump to any conclusions.
Payrolls rose by 248,000 in the initial estimate for September, while figures for July and August were revised a net 69,000 higher. Part of September’s strength reflects a rebound from two special factors that reduced the August total (a seasonal adjustment quirk in autos and labor difficulties at a New England grocery chain). One can ex-out this impact, by averaging the last two months (a +215,000 average, vs. a +261,000 pace over the four previous months). Private-sector payrolls averaged a 217,000 monthly gain in 3Q14 (+216,000 over the 12 months).
Seasonal adjustment adds some uncertainty to the headline payroll figures for September. Prior to adjustment, we added 1.487 million education jobs (vs. +1.416 million in September 2013), and shed 786,000 non-education jobs (vs. -823.000).
The unemployment rate fell to 5.9% in September (from 6.1% in August), the lowest since July 2008. However, most of the drop was due to a decrease in labor force participation (which may have reflected seasonal adjustment issues at the start of the school year). The employment/population ratio was flat at 59.0%, up just 0.4 percentage points from a year ago. The participation rate is now at its lowest point since October 1977.
Some short-term job market measures, such as weekly claims for unemployment benefits and the percentage of people out of work for less than half a year, are at levels we normally associate with an economy that has fully hit its stride. However, other gauges, such as the employment/population ratio, long-term unemployment, and involuntary part-time employment, continue to suggest that a lot of slack remains.
For Fed policymakers, the September employment figures tell us nothing new. The job market is improving, but we’ve a long way to go. The Fed has plenty of time to decide when to begin raising short-term interest rates. The economic figures over the next several months should dictate that decision, but we didn’t really learn much that was new last week.