Jobs Report Is a ‘Solid Gauge’ of the Economy

The Labor Department on Oct. 4 reported that the U.S. economy added 254,000 jobs in September, while also recording a drop in the unemployment rate to 4.1%.

In August, the government revised downward by 818,000 jobs its job totals for the 12-month period through March of this year, but Ian Wyatt, director of economics at recreational marine lender Huntington Commercial Bank, told Soundings Trade Only that he believes the latest report is a “solid gauge” of the strength of the economy.

“While initial data releases are imprecise, we can take the 254,000 jobs figure as a solid gauge that the economy continues to grow jobs,” Wyatt says. “Let’s put the minus 818,000 revision in perspective: The economy added 2.9 million jobs from March 2023 to March 2024. Even revising that number down by 818,000 gets us a very good 2.1 million annual job growth number.

“Part of the issue that caused the revision was the birth/death model where [the Bureau of Labor Statistics] estimates the number of businesses that were created or closed,” he adds. “BLS overestimated how many companies were created last year. Even excluding birth/death model data, this was a good jobs report. Average hourly earnings also rose 0.4% [month-to month in September] and are up 4% year-over-year — earnings growth is tracking well above inflation.

Wyatt says there are “still some issues driving concern at the Fed. One issue is, the pace of job growth has been slowing. Since April, we have averaged 154,000 job growth per month. This month’s 254,000 was well above trend, and revisions to the prior two months added 72,000 jobs — the economy is looking a little stronger than it did a month ago, and this report reduces that concern. Another concern is job turnover. We are seeing very low levels of people quitting jobs or getting hired, as well as layoffs at very low levels. This is a job market that is the opposite of the 2021-22 job market, when we had very high levels of turnover. Typically, the current level of quits and hires is typical of a slower economy. We have yet to see the turnover data improve.”

Chad Lyon, managing director, global inventory finance, at Wells Fargo, was upbeat about the September report. “We had a strong jobs report, with upward revisions to months prior and healthy wage growth while also getting better-than-expected inflation numbers recently,” he told Soundings Trade Only. “So I suspect that starts another loop of guessing the Fed’s next rate action. My guess is that the strength of these numbers will require a reassessment of the forecasted trajectory of rate decreases. However, there is so much economic data between now and Nov. 6-7 that will change a few times. Interest-rate speculating aside, low unemployment with falling inflation is a good scenario for the U.S. economy.”

Wyatt says the strength of the September jobs report makes it much less likely that the Federal Reserve will approve another federal funds rate cut as high as 0.5%, or 50 basis points, at the next meeting of the Federal Open Market Committee, Nov. 6-7.

“At the last meeting, the forecasts for end-of-year rates suggested a divided Fed — about half of the governors want only one more cut total (25 basis points) this year, while half wanted 50 basis points, likely with one 25-basis-point cut in November and one in December,” Wyatt says. “Atlanta Fed president [Raphael] Bostic even suggested the other day that if job data weakened, he would support a full 50-basis-points cut in November.

“This jobs report gives support to the group that only wants one more cut this year,” Wyatt adds. “The market made clear that this lowered expectations for the pace of cuts, with the yield on the 10-year Treasury rising in response to the jobs report by over 10 basis points, or 0.1%.

The federal funds rate is based on very short-term lending, he says. “Long-term rates incorporate estimates about the future path of the fed funds rate and often move in different directions. While short-term rates have fallen, the yield on the 10-year Treasury, which is a key rate as it is tightly linked to mortgage rates, has risen from 3.62% to 3.94% since the Fed announced the cut.”

The government not only reported a strong September jobs gain, but it also revised July’s previously weak total upward by 55,000, to 144,000, and adjusted the August figure higher by 17,000, to 159,000. Economists had forecast that the economy would add 150,000 jobs in September and that the jobless rate would hold steady, at 4.2%.

The latest jobs report also had good news for workers’ pay, as average hourly earnings rose 13 cents, or 0.4%, to $35.36, matching the percentage rate of August’s increase. During the past 12 months, workers’ earnings have increased 4%, remaining well above the current rate of inflation. That level of pay increases continues to support solid growth in consumer spending.

“Consumers continue to spend on experiences,” Wyatt says. “Air travel is tracking about 6% above last year’s record pace. Our real-time consumer spending metrics are showing a little higher spending over the last few weeks. The stock market continues to rally — many higher net worth consumers’ balance sheets are looking very strong.

“Might be a good time to cash in some of that equity and take advantage of lower rates to buy a boat,” Wyatt adds. “But we aren’t seeing a shift yet to durable goods spending. The weakest segments were transportation and warehousing (durable goods), while entertainment drove the job growth.”

The nation’s consumer confidence surveys were mixed in September, with The Conference Board’s Consumer Confidence Index declining and the University of Michigan’s Consumer Sentiment Index improving. “It feels like there are mixed views on the relationship with consumer confidence surveys and spending in this economic cycle,” Lyon says. “Spending generally appears healthy in spite of mixed consumer confidence results, which could be driven by consumers’ views on aggregate inflation over the past few years, versus current lowering inflation trends, as well as the impact of higher interest rates on the consumer mindset.”

The job category leader in September was bars and restaurants, which added 69,000 positions, a figure far above the average gain of 14,000 in that sector during the past 12 months. Health care remained a strong job driver, adding 45,000 positions. Government added 31,000 jobs, social assistance employment added 27,000, and construction added 25,000. The government said there was little change in employment during the month in other major industries. The government said the labor force participation rate — the measure of the population that is in the workforce — held steady at 62.7% for the third consecutive month.

The Fort Lauderdale International Boat Show, scheduled for Oct. 30-Nov. 3, gives consumers another opportunity to show whether they are willing to continue to spend. The question is whether prospective buyers who attend will be wary during a show that occurs only a few days ahead of an important presidential election.

“The [boating] industry has seen wary buyers this season despite a decent economic backdrop,” Lyon says. “Hopefully, falling interest rates and the strong jobs picture bring more consumers out to the fall shows, and early reviews have been optimistic. The Fort Lauderdale International Boat Show is a premier event for larger products, which do attract economically resilient buyers, so you would expect them to be less wary.”

Adds Wyatt: “Over the past year, consumers and businesses have said they are waiting for rates to fall. The irony is that long-term interest rates have been up and down and up again, and returned to where they started the year. We tell clients to play the game in front of them. Stop trying to anticipate rate moves. This jobs report, lower mortgage rates and the rally in the stock market have yet to translate into new-home sales or auto sales.

“At some point the consumer will get off the sidelines and start spending on goods the way they’re spending on concert and sports tickets,” he says. “We just aren’t sure what the catalyst will be that will shift their mindset. Many financial advisers will be telling clients at end-of-year conversations that you can’t take it with you.”

Ahead of the September jobs report, the Labor Department said in its Job Openings and Labor Turnover Survey that vacancies nationally rose in August by 329,000, to 8.04 million, from an upwardly revised 7.71 million the previous month. The construction industry led the economy with 138,000 job openings. It was the largest increase in construction vacancies since 2009.

Hiring fell by 99,000, to 5.32 million. The government said layoffs fell by 105,000, to 1.61 million.

The number of job openings per unemployed worker was 1.1, unchanged from the previous month and about half of the top ratio of more than 2-to-1 in the early months of 2022.

The ADP Research Institute said in its National Employment Report for September that private-sector employment rose by 143,000 jobs, ending a five-month slowdown in job creation, and that annual pay was up 4.7% on a year-over-year basis.

“Stronger hiring didn’t require stronger pay growth last month,” Nela Richardson, the institute’s chief economist, stated in a press release. “Typically, workers who change jobs see faster pay growth, but their premium over job-stayers shrank to 1.9%, matching a low we last saw in January.”