Did The Weak September Jobs Report Derail A 2015 Rate Hike?Commentary by Bob McTeer
October 03, 2015
Probably. It wasn’t just the weaker-than-expected gain of 142,000 payroll jobs in September that disappointed, but also the downward revisions for August from 173,000 to 136,000 and for July from 245,000 to 223,000. These revisions dropped the average payroll gains for the 3 months of the third quarter to 167,000, which is lower than the earlier months of 2015 and much lower than the 2014 average of 260,000. The employment data seem to confirm expectations of a weak third quarter GDP growth following a pretty decent rebound in the second quarter.
The unemployment rate held steady at 5.1% in September, but by now everyone understands that this low number is enabled by a low and still falling labor force participation rate. 350,000 labor force drop-outs in September dropped the civilian labor force participation rate to 62.4%, the lowest since 1977, from 62.6% the previous 2 months. The employment to population ratio fell to 59.2%. All the numbers in this post are from the official report of The Bureau of Labor Statistics.
Another sign of weakness in September was a small drop in the average workweek and flat earnings. The average for all employees on private nonfarm payrolls declined by 0.1 hour to 34.5 hours while the manufacturing workweek declined by 0.2 hour to 40.6 hours. Overtime declined by 0.2 hour to 3.1 hours. Average hourly earnings for all employees on private nonfarm payrolls declined by a penny to $25.09 after rising 9 cents in August. Hourly earnings have increase by 2.2% over the past 12 months, which hasn’t changed much lately and which Chairman Yellen considers inadequate.
Before the September employment report, I thought there was a good chance that the FOMC would lift off at its next meeting on October 27-28. With no new employment report due before then and with a weak advance GDP report for the 3rd quarter expected on October 29, that seems impossible now. Furthermore, December 15-16 also seems much less likely since there will be only one new employment report due before then. Some have argued that this weak report vindicates the FOMC’s non action in September. Maybe so, but one could also argue that they missed an opportunity they should have taken even if these numbers were pending. As they say in Texas, you can argue it round and you can argue it square.