September 2017 Payrolls Report Distorted

Oct 10, 9:08 am
NFP_March nonfarm payrolls

The much awaiting monthly payroll figures from the US showed that the economy was hit by the two hurricanes in September. However, the underlying data although a bit distorted suggests long-term pressures building up.

Summary:

  • Payrolls decline 33,000 in September, missing estimates of 82k increase
  • August payrolls revised higher to 169k
  • Unemployment rate falls to 4.2% marking the lowest levels since Feb’2001
  • Wages for August and September increase, standing at 2.9% on a year over year basis
  • Fed officials likely to view the data with skepticism

US economy loses 33k jobs in September

According to data released by the Bureau of Labor Statistics (BLS), the US economy lost 33k jobs during the month of September. This was below forecasts as the economists polled expected a headline payrolls print of 82k jobs. The payrolls for August were revised higher to 169k jobs, up from the initially reported 156k during the month.

U.S. Nonfarm payrolls: -33k (Sep 2017). Source: Tradingeconomics.com
U.S. Nonfarm payrolls: -33k (Sep 2017). Source: Tradingeconomics.com

The declines in the jobs were attributed to the summer hurricanes which were seen affecting the labor markets as a result. The region of Texas and Florida were the most affected on account of the hurricanes Harvey and Irma. The hurricanes came just before the monthly payrolls report was submitted.

Data showed that among the various sectors, the food services and restaurant sector took the largest hit. Employment in the sector was seen falling 105k during the month contributing to the overall decline in jobs. However, a survey among households showed a different picture with the employment seen rising 906k in September.

The BLS said that the net effect of the hurricanes was to reduce the estimates for the payrolls for the month. However, subsequent revisions cannot be ruled out.

US unemployment rate falls to 4.2%

The unemployment rate in the United States fell to 4.2% in September. This beat estimates which forecast a 4.4% unchanged print from the previous month. This marked the lowest unemployment rate seen since February 2001.

Despite the upbeat numbers, the markets were seen muted to the unemployment rate.

Wage growth rises strongly

The wage growth was another important component which saw some positive data. According to the report, wages in the U.S. rose by $0.12 to $26.55. On a year over year basis, this was a 2.9% increase in wages.

U.S. average hourly earnings 0.5% m/m (Sep 2017). Source: Tradingeconomics.com
U.S. average hourly earnings 0.5% m/m (Sep 2017). Source: Tradingeconomics.com

On a month over month basis, wages rose 0.5%, beating estimates of a 0.3% increase. The wages for August were also revised higher to show a 0.2% increase, up from 0.1% that was previously reported.

Fed to look past the data

Despite the US economy losing 33,000 jobs in September, the underlying components showed the resilience in the US economy. This was consistent with other economic indicators released last week that included the ISM’s manufacturing and non-manufacturing PMI.

The central bank is however expected to assess the situation, looking beyond the temporary factors. With the Fed members expecting to hike rates in December, a pickup in wages could support the case.

This week’s inflation data due on Friday will be another major data point to focus on as underlying pressures in consumer prices is expected to put the headline inflation rate beyond 2% which is the Fed’s target rate.

Immediately after the release of the payrolls report, the new Atlanta Fed president, Raphael Bostic said that the payroll decline was “attention-grabbing” and something that had not happened in a long time.

He, however, said that the hurricanes brought about a lot of distortion to the data. He said that the FOMC would spend time to understand whether the decline in jobs was a signal to potential weakness in the labor market or if it was truly on account of the hurricanes.

(Visited 17 times, 2 visits today)

John has over 8 years of experience specializing in the currency markets, tracking the macroeconomic and geopolitical developments shaping the financial markets. John applies a mix of fundamental and technical analysis and has a special interest in inter-market analysis and global politics.

Follow Me:
Twitter