The hurricanes distorted payroll figure in September was a decline of 33k, well worse than the estimate of +80k. Private payrolls fell by 40k vs the forecast of +75k. Stating the obvious, the BLS specifically said “a sharp employment decline in food services and drinking places (down by 111k) and below trend growth in some other industries likely reflected the impact of Hurricanes Irma and Harvey.” To quantify, there were 1.47mm people that didn’t show up for work due to the ‘bad weather.’ Remember, “employees who are not paid for the pay period that includes the 12th of the month are NOT COUNTED as employed.” There was a dramatic increase however in the household employment survey of 906k jobs (663k came from the important 25-54 yr olds) which combined with the increase of 575k in the labor force sent the U3 unemployment rate down to just 4.2%. In this survey, “persons with a job are COUNTED as employed even if they miss work for the entire reference week, regardless of whether or not they are paid.” Thus, importantly on the household survey with respect to the storms, the BLS said “There was no discernible effect on the national unemployment rate.” The U6 fell 3 tenths and is down to 8.3%. The pre recession low was 7.9%.
Reflecting the large rise in the size of the labor force, the participation rate rose 2 tenths to 63.1%, matching the highest since September 2013. The employment to population ratio rose to 60.4%, the most since January 2009. And finally we saw a sharp rise in wage costs as average hourly earnings rose .5% m/o/m and 2.9% y/o/y which matches the quickest pace since May 2009. As hours worked remained unchanged, average weekly earnings also rose by 2.9%.
Also of note, there was another drop in those working part time ‘for economic reasons’ (lower slack work offset rise in ‘can’t find full time’). There was also a fall in those ‘not in the labor force’ who ‘currently want a job’ but still is above its level of a few months ago.
Bottom line, we can of course put aside the establishment survey. It was the household survey that really made the news with the sharp increase in those working, the drop in the unemployment rate and jump in wage growth. The implications for Fed policy is all over this rise in wages as the market starts to not just fully price in a rate hike in December but at least another one next year. We know the Fed has plans to hike 3 times but we have no idea who is going to be running the institution next year. If its Powell, he’ll go along with 3 more. If its Warsh, expect more than 3. Certainly QT will continue apace.
The 2 yr note yield is at a fresh 9 yr high at 1.52% and the 10 yr yield is at 2.40%. Also, European sovereign bonds are at the lows of the day in response with the German 10 yr bund yield kissing .50% again.
AVERAGE HOURLY EARNINGS