Today, the Labor Department revealed that job growth in the month of September retreated to its lowest level in the past 12 months, while the unemployment rate fell to its lowest level in almost 50 years, leaving the markets in the red to start Friday’s early session with the Dow Jones Industrial Average down over 100 points, the S&P 500 down five points and the Nasdaq Composite down 50 points as of 11:10 a.m. ET.
Looking closer at the data, nonfarm payrolls gained 134,000, which was over 50,000 jobs below the Refinitiv estimates of 185,000. However, the unemployment rate fell to 3.7 percent, which was one-tenth of a percentage below forecasts.
“The labor market is in excellent shape heading into the end of 2018, perhaps the best it has been in 50 years,” said Gus Faucher, chief economist at PNC. “Job growth was a bit softer in September, but some of that was from Hurricane Florence, and it should bounce back through the rest of 2018 and into 2019.”
In addition, the average hourly earnings data showed a 2.8% year-over-year increase, which matched initial expectations, while the average work week came in at a static 34.5 hours.
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“Today’s payroll report didn’t give us much, or any, more confirmation of the state of the employment market today, which to be clear, is quite strong, despite some statistical noise from Hurricane Florence,” said Rick Rieder, BlackRock’s Chief Investment Officer of Global Fixed Income. “Yet, the market’s focus was clearly riveted on a very relevant two-part equation, and its ultimate result. That focus was: 1) how rapidly are wages accelerating, and 2) how much will that pressure inflation higher; leading to the question of 3) how much will the Federal Reserve have to react?
“The answer is clearly that the Fed will have to react to some extent should wages pressure inflation rates higher, but we think today more of those wages (average hourly earnings increased 2.8% year-over-year) are likely to shift into savings than historically would have been the case in a more traditional goods-oriented economy. For that reason, and due to secular inflationary headwinds (technology and demographics), decelerating global growth, and diminished global liquidity, we think the Fed reaction function will be more subdued than many in the market anticipate.”
Today’s data came as unemployment claims last week fell to a 49-year low, pointing to sustained strength in the labor market. Claims for unemployment benefits fell to 207,000, besting the forecasted 213,000 by a Reuters poll of economists.
Additionally, private payrolls grew stronger than expected in September with 230,000 positions added. The private payrolls total easily bested the 168,000 jobs added in August–more than the 185,000 expected by a survey of economists and the highest number of payrolls added since the 241,000 added in February.
Furthermore, the U.S. services sector grew last month at its fastest pace based on data released by the Institute for Supply Management. The ISM non-manufacturing index ticked up to 61.6, which represents its highest level since 2008, beating out a poll of economists expecting the index to show 58 for the month of September.
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