Sep NFP: The Trend Still Solid; Fed To Hike In

The US gained 156K jobs and wages are up 2.6% y/y in September. Is it good enough? The team at Bank of America Merrill Lynch thinks it is and explains:

Here is their view, courtesy of eFXnews:

Headline numbers slightly softer”¦

The September employment report  revealed job growth of  156,000  with  August revised up to 167,000 from 151,000  and July revised down to 252,000 from 275,000 initially.  The unemployment rate ticked up to 5.0% from 4.9%  as the participation rate  increased  to 62.9% from 62.8%.  The broader U6 measure of unemployment remained unchanged  at 9.7%  while average hourly earnings added 0.2% mom or 2.6% yoy. Bottom line:  the  September jobs report should leave the Fed on track to hike in December, but  it  was  notrobust enough to push for a November hike.

..but trend still solid

Although the  September and August  jobs figures  were  weaker,  the  3-month average  still  stands at a healthy  192,000  andthe 6-month average at 169,000.  In September, the  gain came from the private sector,  with 167,000 in private payroll growth and government payrolls contracting by 11,000.  The composition of industry employment continues to point to challenges in the goods sector  while services employment leads  growth.  Services jobs expanded by 157,000 while goods jobs  grew  by only 10,000.  Within services, business services gained 67,000 followed by a 29,000 gain in education and health services. On the goods side, construction jobs expanded by 23,000 while manufacturing jobs contracted by 13,000.

Rejoining the labor force

The unemployment rate ticked up to 5.0% (4.965% unrounded) from 4.9% (4.922% unrounded), owing to  an increase in the participation rate to 62.9% from 62.8%.  The increase in the labor force participation rate suggests that the labor market may not have reached full capacity and there is still outstanding slack, implying only gradual wage increases. Indeed, wages increased  0.2% mom,boosting  the year-over-year rate to 2.6% from 2.4%. This is at the upper-end of the recent range for wages.

Fed: hike in December

Putting the pieces of the puzzle together, nonfarm payrolls were slightly below expectations but still pointed  to solid job growth. Moreover,  we think the risk is for September jobs to be revised higher as tends to be the historical trend. The bigger story, however, is the increase in the labor force participation rate which implies there is capacity for further expansion in the labor market.  This leaves the Fed comfortable hiking in December, but  to engage on  a very shallow cycle.

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