Jobs Report Has Goldilocks Feel, But Offers More Evidence Of Cooling Economy. All Eyes On Fed Implications

The US labor market hung tough in September, the latest sign that Donald Trump’s once high-flying MAGA economy hasn’t completely succumbed amid a worsening global slowdown.

Nonfarm payrolls increased 136k last month, missing estimates of 145k, but avoiding the kind of disaster print that some feared following abysmal reads on IHS Markit’s employment gauges and a soft ADP report earlier this week.

Revisions added 45k to the headlines for July and August. Private payrolls were weak at 114k.

Average hourly earnings were flat MoM and rose a cooler-than-expected 2.9% YoY.

The combination of a decent headline, positive revisions and subdued wage growth argues for a “Goldilocks” interpretation of the September data – at least from the market’s perspective.

In the real world, slowing wage gains aren’t great for the consumer, who is shouldering the burden of prolonging the expansion.

The unemployment rate fell to a rock-bottom 3.5%, casting still further doubt on the viability of any model that links wage growth to the jobless rate.

You’ll recall that the original August print (130k on the headline) was a disappointment, which means the September report and the accompanying revisions should offer something of  a reprieve, albeit with a number of caveats to account for the fact that the economy is, unquestionably, slowing.

Manufacturing payrolls fell 2k, and census hiring was negligible at 1k.

The trend in payrolls has been worrisome for the president, who has leaned heavily on his economic track record when making the early case to voters ahead of a 2020 election that he may or may not take part in, depending on how things develop on Capitol Hill.

The 3-month average is now 157k.

The latest temperature check on the jobs market comes after a string of bitter disappointments on the data front, including the worst read on the manufacturing sector in a decade and the lowest ISM non-manufacturing print of the Trump era.

The ADP report on Wednesday was similarly underwhelming, adding insult to the previous day’s injury, and contributing to a steep two-day slide in stocks to start the fourth quarter.

Equites recovered Thursday after sliding sharply following the lackluster services sector report, thanks in no small part to the assumption that the worse the economy looks, the more likely the Fed is to persist in rate cuts.

From the Fed’s perspective, September payrolls supports the notion that the economy is still on reasonably sound footing, but subdued wage growth ostensibly means there’s scope for more rate cuts without risking an unwanted spike in inflation pressures. If policymakers need more cover, they can simply refer to the PMIs and, of course, uncertainty around the trade war.

Estimates and priors

• Change in Nonfarm Payrolls, est. 145,000, prior 130,000
• Change in Private Payrolls, est. 130,000, prior 96,000
• Change in Manufact. Payrolls, est. 3,000, prior 3,000
• Unemployment Rate, est. 3.7%, prior 3.7%
• Average Hourly Earnings YoY, est. 3.2%, prior 3.2%
• Average Hourly Earnings MoM, est. 0.2%, prior 0.4%
• Average Weekly Hours All Employees, est. 34.4, prior 34.4
• Labor Force Participation Rate, est. 63.2%, prior 63.2%
• Underemployment Rate, prior 7.2%

Actual

• U.S. Sept. Nonfarm Payrolls Rose 136k; Unemp. Rate at 3.5%
• Nonfarm payrolls forecast est. 145k, range 85k-185k from 79 economists surveyed
• Nonfarm payrolls, net revisions, 45k from prior two months
• Participation rate 63.2% vs prior 63.2%
• Avg. hourly earnings 0.0% m/m, est. 0.2%, prior 0.4%; Y/y 2.9%, prior 3.2% est. 3.2%
• Nonfarm private payrolls rose 114k vs prior 122k; est. 130k, range 100k-165k from 32 economists surveyed
• Manufacturing payrolls fell 2k after rising 2k in the prior month; economists estimated 3k, range -5k to 7k from 17 economists surveyed
• Unemployment rate 3.5% vs prior 3.7%; est. 3.7%, range 3.6%-3.8% from 76 economists surveyed
• Underemployment rate 6.9% vs prior 7.2%
• Change in household employment 391k vs prior 590k