Multi asset research firm Source published a report on October 4th suggesting that the negative reaction to the weak U.S. September jobs report was overblown. Source analysts Paul Jackson and András Vig argue that the September report was just a blip on the radar as most other important economic indicators show the US economy remains on track.
Jackson and Vig explain their perspective: “Friday’s US employment report was disconcerting, especially given the apparent weakness in service sector jobs. However, this payroll data is erratic and other labor market indicators paint a rosier picture. We remain buyers on dips.”
Underlying strength in US economy belies weak jobs report
The Source analysts suggest that the most worrying aspect of the weak September jobs report was the average 126,000 growth in service sector jobs during August and September, off almost 100,000 from a reasonably strong 221,000 over the prior three months. That said, this weakness does not jibe with other economic indicators showing more strength in the US economy.
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For example, the ADP employment report showed an average 180k gain in service sector jobs in August and September (compared to 190k over the prior quarter); weekly initial jobless claims continue to be around 270,000, suggesting a healthy labor market, and the data from the Conference Board consumer confidence survey suggests jobs are being created faster than at any time in the last eight years.
The Conference Board survey also highlighted an increase in confidence in September to 103.0. Plans to buy houses and cars remain on the high side historically, which fits with the 18.07 million in annualized vehicle sales in September (the highest since 2002, except for one-month spike in July 2005). Wen you throw in the robust 0.4% gain in personal spending in August, there is little reason to suggest that U.S. consumers are worried about their employment circumstances.
Jackson and Vig remind readers to keep in mind that non-farm payroll data is rather volatile, and is almost always revised. Figure 1 compares the official and the ADP data on job creation in the private services sector (ADP data is based on payroll). The official data seems to be more erratic, so the analysts say they “would pay more attention to the ADP data, which remains pretty robust.”
Figure 2 illustrates a range of labor market indicators which generally remain encouraging regarding the US economy. For starters, weekly initial jobless claims are not showing obvious of labor market deterioration, and the most recent Conference Board Consumer Confidence Survey suggests households have yet to notice any worsening in their situations. Last but not least, the employment component of the non-manufacturing ISM also remains relatively strong.