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Employment Data Mixed for September

RFP
Payroll employment rose by 136,000 jobs in September, but was revised up for the previous two months. The pace of job growth has slowed from 223,000 per month in 2018 to 158,000 over the last three months. Gains remained heavily concentrated in professional services and health care, but further weakened in the retail sector where the move from in-store to online shopping has triggered a surge in retail bankruptcies. Retail employment has dropped by nearly 200,000 jobs since the peak in January 2017. Losses have been concentrated in clothing and traditional department stores. Manufacturing jobs also contracted in response to weakness related to tariffs and trade. The GM strike occurred after the survey for the month of September and will not show up until the October employment report, scheduled for release on November 1.

Gains in professional services and health care were broad-based, but the pace of growth in the professional services industry has slowed with overall job gains over the last year. Health care has stood out as demographic shifts are supporting continued gains in that category. The over-80 crowd and the aging of the baby boomers into retirement are both key factors.

Hiring among leisure and hospitality workers has also slowed fairly dramatically over the last year. Consumers have proven skittish and more sensitive to negative news than in the past. They actually pulled back on discretionary spending during what was once the height of the summer vacation season when fears of a full-blown trade with China resurfaced in August.

Government hires totaled 22,000 during the month, with gains concentrated in the state and local sectors. Hiring for the Census, which boosted jobs last month, is not expected to pick up again until the start of 2020 when the Census Bureau starts making offers to recruits who have passed all the necessary background checks; it is an onerous process. State and local hires were split between education and noneducation hires. Repairs to infrastructure picked up later than usual this year, which is still welcome news given the poor shape of our roads, bridges, and bus, train and air terminals.

Average hourly earnings fell by a penny to $28.09 per hour decelerating to 2.9% from one year ago, the slowest pace in more than a year. The biggest slowdown in wages occurred in the information sector, which had been a primary driver of wage gains until recently. The information sector includes software publishing, traditional and internet publishing, broadcast and motion pictures and telecommunications.

Separately, the unemployment rate fell 0.2% to 3.5% in September, a new low for this cycle. The last time we saw such a low rate was in December 1969. Labor force participation held at August levels, which is above the trough for the cycle hit in 2015 but still well below the peaks we saw prior to the financial crisis and well below the peak we hit for prime-age (25-54) workers in 2000.

Bottom Line
The slowdown in wage growth was disappointing, while the drop in the unemployment rate to a new low was pleasantly surprising. There is little in this report to change votes regarding another rate cut by the Federal Reserve. Next week, we will get some inflation data, which could influence the Fed more. The October rate decision is likely to be influenced more by the outcome of upcoming trade negotiations with China and whether some kind of a partial deal can be reached between the U.S. and China.

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