In a week that has been characterized by worrying data on the economy, a positive report – particularly on the critically important labor markets – should prompt a collective sigh of relief.
Without question, the economy and the pace of job creation have slowed this year. That was to be expected, as the fiscal stimulus from tax cuts was absorbed. It’s the degree of the slowdown that has created anxiety, and the fear that it may have further to go.
The primary concern has surrounded tariffs and disruptive trade policy that have hung heavy over business confidence and exacerbated that slowdown. Slower growth outside the U.S. has also been a headwind. The manufacturing sector – particularly those reliant upon Chinese suppliers or foreign buyers – have taken it on the chin. More recently, evidence of spillover into the service sector has also become more pronounced.
Against that backdrop, the decline in the unemployment rate to 3.5% and solid job creation provide reassurance that the economy hasn’t fallen out of bed. Certainly, risks have increased, and one positive report on jobs isn’t enough to signal an “all clear”, but mark this report down as a win.
Job creation was a bit softer than expected at 136,000 for the month, but upward revisions to the preceding months adding 45,000 to that tally. Combined, the increase was better than anticipated.
Manufacturing payrolls have been little changed in recent months, as a modest gain in August was erased in September. Given the degree of slowdown in the nation’s factories, flat payrolls there over the last few months isn’t great news, but it doesn’t seem as bad as expected. Additionally, a pickup in construction employment helped to keep payrolls in the goods-producing sector on the plus side of the ledger.
The employment report is robust though, and all the data wasn’t good. Wage growth stumbled, growing by just 2.9% over the past 12 months, as average hourly earnings slipped by a penny.
With significant headwinds in the export and industrial sectors and with business investment impaired by a lack of conviction and a muddy trade policy outlook, the consumer sector is easily the most critical driver for the economy right now. Confidence has dipped in recent months, but remains quite positive from a historical perspective. Jobs are the cornerstone for consumers to maintain their relatively upbeat outlook. Slower wage growth notwithstanding, the overall picture for labor conditions is still reasonably good.
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