September 2014 US Jobs Report, How good is it? Well the jury is in, September 2014 turned in strong jobs numbers as payrolls were up 248K, surpassing expectations, and the unemployment rate ticked down to a six-year low of 5.9%. August’s initially disappointing payroll count of 142,000 was revised up to 180K, and the average work-week ticked up to 34.6 hours, a post-recession high and a clear sign of an improving labor market. The market cheered the results, but is the report that good?
When drilling down into the BLS jobs report, we see a few problem spots. Average hourly earnings for all employees, at $24.53, changed little in September (-1 cent). One would think that if employment was so plentiful, labor would have some pricing power. Clearly they do not, though the average workweek for all employees edged up by 0.1 hour to 34.6 hours. This seems to indicate that once again most of the added jobs were of the lower wage type.
The real kicker is that the labor force participation rate fell once again to a new post crisis low of 62.7% from 62.8%. Take a look at this table from the BLS. Today there are over 2 million MORE folks not working, as compared to the supposedly good job numbers of 2013. This is an amazing number. Some have postulated that these are baby boomers retiring, though when reading the foot notes from the BLS, it would not seem to imply that this is the case.
When looking at the much pooh poohed employment numbers from shadowstats, it still shows unemployment, of which takes into account a lot of these factors, at well over 22% (see thumbnail chart). One may dispute the shadowstat unemployment accounting methodology, and say it is overstating the real unemployment rate. But if the formula has held constant over the years, it is showing that in fact employment structure has changed dramatically, when comparing it to the BLS numbers. This structural change does have a material negative macro impact on the economy. Meaning, employment is still difficult and if you do find a job, it will be of a lesser position and a lower wage, compared to the pre-2008 crisis conditions.
I remind you that we are coming close to ending a 7-year business cycle, and employment is always a lagging economic indicator. So if you are a jobseeker, this is as good as it gets. Though the job report is reasonably good, it falls far short of where it should be, relative to other recovery periods at this time in a business cycle. If we are rounding the top, employment is starting from a lower base and could spell trouble for the future.
At the end of the day it does not matter what you or I think about the jobs report, it is what the Fed thinks. Is it good enough to end QE and begin to raise interest rates as planned? The answer to this is, that the Fed most likely will end QE in October and then wait to see if the gains hold, and the other job indicators can really start to show improvement.
Specifically, labor participation rates and wage growth. If these numbers hold flat or even go down, the Fed will hold off raising rates. Bond rates seem to agree with this assessment, as the Bond market’s reaction to the jobs report was largely flat. The Dollar rose sharply in anticipation of a robust US economy and these potential rising rates. But there is some mis-pricing going on here. Either Bond rates are going up significantly or this Dollar rally will reverse soon. I suspect the later to be closer to the reality.
Blue Point Trading, William Thompson
