The economy added 134,000 jobs in September, well below expectations for 184,000. However, revisions to the preceding two months were robust, adding another 87,000 to the combined tally for July and August. All in, the increase of 221,000 easily exceeded expectations.
It’s not unusual for August and September nonfarm payrolls to be a bit more volatile and subject to higher than normal revisions, and this year was clearly no exception. Conversely, the negative impact from Hurricane Florence on the affected region was not as noteworthy as some had anticipated, but likely weighed on certain sectors, most notably in leisure and hospitality.
The eye-grabbing number though is the unemployment rate. The decline to 3.7% was more pronounced than economists had expected, pulling the jobless rate down to a level last seen in 1969. Even at the peak of the 90s economic boom, unemployment bottomed at 3.8% in April 2000.
The refrain from employers today is familiar, but intensifying. As demonstrated both anecdotally and in the data, employers are finding it increasingly difficult to find workers to fill their needs. The result is some upward pressure on wages, but also an increasing focus on job training and capturing productivity gains wherever they can be found.
Average hourly earnings grew by 0.3% in September and 2.8% over the past year – not terribly noteworthy, particularly with inflation rising as well. Still, wage pressures will certainly continue to build should the economy continue to hum along as expected.
Perhaps the greater difference is in the workers that are being hired and the need for employers to invest more in training them to fill the role they are needed in. Employers aren’t going to pay up for workers that don’t have the skills they need. Instead, the fact that they are hiring workers that they wouldn’t have considered a few years ago and making the investment to train them speaks directly to the tightness in hiring conditions.
The bottom line is that the economy is in an unusual sweet spot, particularly this late in the cycle. Growth has accelerated, job creation remains robust, and inflation – while rising – remains relatively tame.
At some point, job creation has to slow. Given the dwindling pool of untapped labor, it’s somewhat surprising to see the pace of job creation still this strong. It’s clear that there are still workers on the sidelines that are being enticed back in. How large is that group? That’s a key question that remains unanswered, but one that will help to define how much further the current expansion has to run.
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