The U.S. labor department released its latest monthly non-farm payrolls report on Friday. Data showed that the job creation fell to the lowest level in a year. However, on the flip side, the U.S. unemployment rate fell to the lowest level in nearly 50 years.
Official data showed that the nonfarm payrolls increased 134,000 on the month in September. This was well below the median estimates of 185,000. It was also the lowest number of jobs added since September last year. The number of jobs fell due to a labor force strike during that period.
The decline in the number of jobs added came on account of Hurricane Florence. Economists expect the jobs growth to bounce back in October once again. There were however previous revisions for July and August. The revised jobs numbers showed a net gain of 87,000 more jobs added to the economy than initially reported.
According to the statistics, the U.S. economy is required to add 120,000 jobs per month on average to maintain the growth in the working age population.
The U.S employment rate fell to the lowest level as well beating estimates. The unemployment rate fell to 3.7%. This was the lowest level since 1969 December.
Another measure of unemployment which includes workers discouraged from seeking jobs and those holding part-time jobs due to economic reasons rose to 7.5%, also known as the underemployment rate.
The average hourly earnings, which are closely watched in recent times due to the potential impact on inflation grew 2.8% on a year over year basis.
Despite the somewhat downbeat headline, the labor market was seen to be in excellent shape heading into the final quarter of the year.
The somewhat weaker print in the headline jobs number comes as the U.S. Federal Reserve chairman Jerome Powell gave a speech just a few days before. He called the outlook for the U.S. economy to be “remarkably well.”
The Fed hiked interest rates by 25 basis points at its meeting in September. It also predicted one more rate hike that is due in December 2018. For 2019, the Fed officials projected a full percentage point increase, or about one rate hike per quarter.
ADP payrolls show 230k jobs added in September
The official payrolls report came after earlier in the week, payrolls firm, ADP released the private payrolls data. The data beat expectations of 185,000 and was higher than the headline print of 168m000 in August.
The payrolls report for August was revised slightly by 5000.
The data from Moodys Analytics and ADP projected that the U.S. unemployment rate was on track to inch closer to the 3% threshold.
“The risk that this economy overheats is very high, and this is one more piece of evidence of that,” Mark Zandi, the chief economist for Moody’s Analytics said.
The report however excluded those affected by the Hurricane Florence which hit the Carolinas. Zandi hinted that this was the reason why the jobs number was overstated. Data showed that the manufacturing sector added just 7,000 jobs in the private sector.
It was the weakest reading in a year.
Despite the jobs reporting showing a low headline number, the underlying data suggested that the U.S. economy is likely to maintain strong momentum in growth. In a few weeks, the third quarter GDP numbers will be released.
Expectations are high that the U.S. economy likely maintained an above 4% GDP growth for the second consecutive quarter.
Following the release of the report, the bond yields surged. Investors are speculating that there is a real risk of inflation overshooting the Fed’s target of 2.0%. This could potentially prompt Fed officials to hike rates at a faster than expected pace.