The September employment report showed a +114k increase in headline nonfarm payrolls, which was in line with expectations. The prior two months were revised up by +86k. Thus, the three month average on payrolls is finally reaccelerating (+146k vs. +123k previously). Private payrolls rose +104k vs.+119k previously. The goods-producing sector registered job losses of -10k,
led by manufacturing (-16k vs. -22k). Construction added +5k jobs. Service sector employment rose +114k vs. +119k previously. The overall tone of the payroll gains were tepid, however, the wages and hours data were more robust. The unemployment rate dropped from 8.2% to 7.8%, as detailed further below.

Unemployment Dips to 7.8% as Data Looks Robust, but Not All is Rosy

The nonfarm workweek rose a tenth (to 34.5 hours) and average hourly earnings rose 0.3% vs. unchanged previously. Thus, aggregate income growth rose +0.7% in September after rising just +0.1% previously, as a result the year-on-year rate of change reaccelerated to 3.9% from 3.7% previously.

Overall, the tone of the Establishment Survey was only slightly better than in the prior month. However, the Household Survey (from which the unemployment rate is derived) showed stronger results as employment rose +873k vs. -119k previously and the labor force expanded by +418k. As a result, the unemployment rate fell to 7.8%, which is the lowest since January 2009.

The significant gain in employment is unusual, even though the Household Survey tends to be more volatile. Case in point, this was the
largest rise in employment since January 2003 when it spiked to +991k; the six-month average change is +157k. While much focus will be on the decline in the unemployment rate, the labor force participation rate only moved a tenth higher to a still low 63.6%.

This marks the twenty-fourth consecutive enrollment of either flat or growing payrolls (August 2011 was the only month where payrolls were flat). We haven’t seen a decline in this metric since September 2010. As a reminder, in 2010, there were a total of 715,000 jobs created. For the full-year 2011, there were ~1.4 million total jobs created. In 2012 year-to-date, the economy has added 1.26 million jobs.

The defined labor force increased 114,000 lives from last month to 155.063 million. The labor force now totals just 63.61% of the population (defined as the civilian noninstitutional population).

In terms of the employment-population ratio, a metric regularly cited by Mr. Bernanke, the improvement is much more muted than what the unemployment rate decline implies (58.7% vs. 58.3% previously).