Modest Rise In Nonfarm Payrolls Disappoint Goldilocks by Lindsey M. Piegza, Chief Economist –
Nonfarm payrolls rose 156k in September, significantly weaker than the market expected, albeit in line with our forecast of 155k. August payrolls were revised up from 151k to 167k, and July payrolls were revised down from 275k to 252k, for a net revision loss of 7k. The overall change in nonfarm payrolls (September data + net revisions) was a gain of 149k.
The six month average, furthermore, slowed from 174k to 169k, the weakest since November 2012.
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Bottom Line: Goldilocks would not approve: This morning’s employment report was not too hot, not too cold, but far from just right. After all, a so-so September jobs report comes against the backdrop of still-sluggish inflation, weak headline growth and a continued decline in business investment. Thus, those hoping a string of solid jobs reports would be enough to offset weakness elsewhere in the economy are no doubt extremely disappointed with the latest lackluster employment figures.
While September marks the 72nd month of positive job creation in the U.S., the pace of hiring has slowed. Dropping from near 250k at the end of last year, the trend in job creation cooled to around 200k in the early months of 2016 before falling below 170k as of late. Month-to-month-volatility aside, U.S. employment has noticeably lost – not gained – momentum since the December liftoff.
Continued improvement in the labor market was at the forefront of the Fed’s latest talking points, suggesting the possibility of a year-end rate hike. Any further loss of momentum in hiring at this point, not to mention weaker-than-expected topline growth as we await Q3 GDP, or a further decline in inflation (or inflation expectations) will make it increasingly more difficult for the Committee to adjust policy anytime soon. As the Fed said in the September FOMC statement, the case for a rate hike has strengthened, but more evidence is needed. The key is further evidence. This morning’s report offers no such confirmation that a second-round hike – at least at this point – is appropriate.