Nothing good to see in September US employment data

Nonfarm payroll growth for September came in well below economist expectations at 142k. Heading into the report, (forecast: 200k) and consensus (201k) had been looking for payroll gains in line with recent trends. Private payroll growth was even softer than the headline number would imply, increasing only 118k in September following a tepid rise of 100k in August. Prior months' payroll data were also revised substantially lower (59k).

"Beyond the headline number, we see broad-based weakness in US labor markets, with the past month's revisions now showing a decidedly softer trend growth in jobs. Although the U3 unemployment rate was unchanged at 5.1%, the participation rate fell 0.2 to 62.4%. The broader U6 underemployment rate, which includes part-time workers, declined three-tenths, to 10.0%, as the number of workers who are part time for economic reasons dropped sharply. However, given the overall weakness in the report, we do not take that decline as a positive sign, as some of that decline likely reflects workers leaving the workforce rather than finding full time work. Average hourly earnings were also soft, rising 0.0% m/m, much weaker than expected", says Barclays.

This report is much weaker than we had expected. Economists believe the weakness in payroll employment growth and hours worked reflect the deceleration in activity abroad and, more recently, the pickup in financial market volatility domestically. Past experience suggests that these episodes temporarily weigh on demand for labor and economists raised this as a risk to the outlook on August 24 when analysts pushed out expectation for the first rate hike to March 2016.

Nonfarm payrolls expanded only 142k in September in the establishment survey, considerably below forecast and consensus forecast of 200k. In addition, job growth was revised down 59k over the previous two months; the three-month trend in payroll growth fell to 167k as of September.

The softness relative to expectations was broad based. Goods-producing employment contracted 13k (previous: -22k). Manufacturing employment declined 9k, and mining was down 10k; these readings are in line with the weak level of ISM manufacturing in September, the domestic manufacturing continues to face headwinds from lower energy prices, a strong dollar, and especially the weakness from abroad. Service sector payrolls were also weak, expanding a very modest 131k after increasing only 122k in August. Trade and transportation payroll growth (23k, previous: 17k) is well below the pace earlier this year. With the data revisions, even employment growth in education and health services, which has been a bright spot of employment growth over the recovery, softened rising only 29k, compared with an average growth of 59k in the three months ending in June. The softer 118k (previous: 100k) in private payroll growth was offset slightly by another month of solid gains in government employment. Public sector payrolls grew 24k (previous: 36k), led by gains in state and local payroll growth.

Elsewhere in the establishment survey, average hourly earnings were unchanged in September and are now up 2.2% y/y, well below expectations. The average work week dropped 34.5, also below the expectation.Household employment fell a sizable 236k (previous: 196k) in September, its second decline in four months.

"The labor force participation rate fell to 64.2%. Despite this decline in participation, the unemployment rate fell two-tenths, to 5.1% (5.051%). U6 fell 0.3 to 10%, as part time for economic reasons fell considerably; we do not take much comfort from this decline. Given the sharp decline in household employment, these workers are more likely to have left the workforce than to have found full time work", added Barclays.