September employment: Some sizzle in a cooling trend

Summary

The September employment report was strong across the board. Nonfarm payrolls jumped by 254K in the month, the hottest reading since March, and job growth in August and July was revised higher by a cumulative 72K. Coming into today, the three-month moving average on monthly nonfarm payroll growth was 116K. Today's print, when paired with the upward revisions, pushes the three-month moving average up to a much more robust 186K. The separate household survey from which the unemployment rate is derived also showed signs of a labor market that is coming into balance rather than collapsing. Employment as measured by the household survey outpaced growth in the labor force, pushing the unemployment rate down by one-tenth to 4.1%.

Today's employment report is welcome news and suggests that the soft readings over the prior few months were not a sign of an imminent and sharp increase in unemployment. That said, one point does not make a trend, and there is still plenty of evidence to suggest that the labor market is cooling. That this cooling appears to be gradual rather than sudden reinforces our view that the FOMC will opt for a 25 bps reduction in the fed funds rate at its November 7 meeting instead of a second-straight 50 bps rate cut.

September jobs report bucks cooling trend

Nonfarm payroll growth in September blew past expectations, expanding by 254K compared to a consensus forecast of 150K. Perhaps even more encouragingly, job growth in August and July was revised higher, reversing a string of reports when the revisions to job growth in prior months were negative. Coming into today, the three-month moving average on monthly nonfarm payroll growth was 116K. Today's print, when paired with the upward revisions, pushes the three-month moving average up to a much more robust 186K. The sectors that have led the charge on employment growth in recent months once again posted strong gains. Leisure & hospitality (+78K), healthcare (+45K), government (+31K) and social assistance (+27K) accounted for 71% of the job growth in September despite only accounting for roughly 40% of total employment. Overall hiring was more widespread in September, with the diffusion index of industries adding jobs rising to 57.6. However, the amount of jobs added by various other industries was still somewhat underwhelming. For example, professional & business services were up by 17K, finance up 5K and information up 4K. Manufacturers continued to shed jobs last month (-7K), while hiring at temporary staffing agencies fell for the 28th time in 30 months.

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