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The US economy added just 194,000 jobs in September, as hiring remained a bit slow despite the start of the latest wave of Covid. Yet the unemployment rate fell to 4.8% and wage growth remained strong. After the jobs report, the Dow Jones wavered and then dipped into the red on the morning stock action.
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Here’s the big picture: Workers still aren’t leaving the sideline quickly enough. In fact, labor market participation declined in September, despite the end of unemployment benefits in the event of a pandemic. The labor shortage is driving wage growth, which companies partly compensate with price increases. Conclusion: this report suggests a continuation of the inflationary dynamic that we have observed.
Given these inflationary implications, the stock market’s initial reaction was a bit odd: Dow Jones futures fell behind, while Nasdaq 100 futures soared. Investors appeared to be focused on the weak securities figure, which would imply slower growth that could dampen Treasury yields, slightly negative for financials.
Still, there was nothing disinflationary about the report, as Wall Street appeared to realize later in the morning, as the indices hit their morning highs. Factoring in both healthy wage gains and a jump in the average workweek, total private sector weekly wages jumped 1.4%, tied for the highest of the year.
Still, Wall Street sees no reason to panic and it makes a lot of sense. While people aren’t rushing back to work, it should happen in the coming months as vaccination rates rise, Covid declines and their savings dwindle.
Construction report details
The private sector payroll rose by 317,000 in September, while government jobs fell by 123,000, the Labor Department said.
Wall Street expected the September jobs report to show a gain of 475,000 jobs overall, including 445,000 jobs in the private sector. Economists expected the unemployment rate to fall to 5.1% from 5.2% in August.
Average hourly wage growth of 0.6% in September exceeded the expected monthly gain of 0.4%. Annual wage growth accelerated to 4.6% from the 4.3% initially announced for August.
Job gains for July and August were revised upwards by 169,000 in total. The August report initially reported a gain of 235,000 and was revised to 366,000.
The leisure and hospitality sector created 74,000 jobs after gaining 38,000 in August. This is still only a fraction of the approximately 400,000 jobs created in the sector in June and July.
Factory employment increased by 26,000. Construction jobs increased by 22,000. Health care and social assistance payrolls increased by 12,300. Retailers created 56,100 jobs.
The somewhat weak job gains in September came as pandemic unemployment benefits, including an additional $ 300 per week, ended across the country on Labor Day weekend. Even before that, 26 states halted unemployment assistance in an attempt to get reluctant workers back into the workforce.
Wage growth has strengthened as companies compete to attract and retain workers who are scarce, despite continued high unemployment. September 3, Walmart (WMT) said it was giving 565,000 of its workers at least a pay raise of $ 1 an hour, bringing his average wage to $ 16.40. This pay rise, which took effect on September 25, was not reflected in the September employment report which is based on mid-month surveys of employers and households.
Dow Jones and Treasury Yields Respond to Jobs Report
Dow Jones futures were up and down after the 8:30 am ET jobs report, then traded down around 0.1% shortly after the opening bell. The S&P 500 and the Nasdaq composite also dipped slightly into negative territory, returning earlier gains.
The stock market came under pressure in September, which saw inflation fears and Treasury yields rise as the Federal Reserve moved closer to the start of the withdrawal of the monetary accommodation. The September jobs report was supposed to seal the deal for a reduction in asset purchases to be announced on November 3. Weak employment figures, largely due to a decline in public sector jobs, are unlikely to change this downsizing schedule.
Yet, after staging a rally in recent days, the Dow Jones has rebounded 2.4% from its all-time high of 35,625.40 reached on August 16. The Dow Jones is up 13.6% for the year.
The S&P 500 is 3% off its September 2 high, but up 17.1% this year. The Nasdaq is 4.7% below its September 7 high, but up 13.7% year-to-date.
After Friday’s jobs report, the 10-year Treasury yield faltered, but held close to Thursday’s nearly four-month high of 1.6%. Overnight, the benchmark yield climbed to 1.6%.
Rising Treasury yields are positive for many financial stocks, but overall they can weigh on the stock market, especially high-valued growth stocks.
Wall Street economists are hoping to see labor market participation increase, which would help ease wage pressures and ease fears that rising inflation will force the Fed to raise rates sooner than expected.
Be sure to read IBD’s The Big Picture column after each trading day to get the latest stock market trends and whether investors are given the green light to buy quality stocks at an appropriate entry point.
Unemployment
The household survey, which is used to calculate the unemployment rate, showed that the ranks of employees increased by 526,000, while the unemployed decreased by 710,000. Those who are in the labor force – they working or looking for work – fell by 183,000, while the ranks of inactive Americans rose by 338,000.
According to the monthly household survey, 7.7 million Americans are unemployed, up from 23.1 million in April 2020, but up from 5.8 million in February 2020.
Please follow Jed Graham on Twitter at @IBD_JGraham for coverage of economic policy and financial markets.
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