The September labor market report was strong, but not in September. The July reading was revised higher from 147,000 to 165,000 and the August reading was revised sharply higher from 201,000 to 270,000, writes Don Kaufman Saturday. There’s more to the story.

That’s an additional 87,000 jobs created in the prior two months. On the other hand, the September report missed expectations as there were only 134,000 jobs created instead of 180,000. Only 2 out of 74 economists predicted 125,000 jobs created. The others were more optimistic.

If you only look at the September report, it looks like the labor market is barely growing quicker than the population. However, you need to look at each of the past 3 months because the results are often moved among months.

Maybe the markets would be more optimistic if the job creation beat estimates in September instead of being revised higher in the prior two months, but I don’t think it matters. Why would it matter if a job was created on August 29 instead of September 2? Then 87,000 more jobs were created in July and August than we thought and 46,000 less jobs were created in September. That’s a net positive in my opinion.

Jobless claims, ADP, and ISM all wrong

The ADP report once again missed forecasting results because private payrolls were up 121,000, while ADP said they were up 230,000. Given the size of the labor market, a few thousand jobs are like one sand particle on a beach. However, a difference of 109,000 is fairly significant. That’s why I don’t use the ADP report to make predictions.

Secondly, the jobless claims reports were also too optimistic. The claims increased slightly two weeks ago because of Hurricane Florence, but the effect was muted. The jobless claims that week were revised from 214,000 to 215,000. In the most recent week, which was the last week in September, claims fell 8,000 to 207,000. These are record low levels in relation to the size of the labor force.

As I showed in a previous article, these claims imply about 400,000 jobs created per month which isn’t close to the results this year. The recent ISM report had the best employment reading ever. While this September employment report wasn’t bad, it shows how unrealistic the ISM report was.

The chart below shows the ISM employment index implied job growth of over 500,000. That was a ridiculous reading which isn’t in tune with the fundamentals.

chart 1

Effect of Hurricane Florence

The jobless claims suggest there was a small impact from Hurricane Florence. In the most recent reading, jobless claims in South Carolina increased 1,000 to 4,800. However, the claims in North Carolina fell about 5,000 to about 5,300.

As you can see in the chart below, according to the BLS report, the number of people not at work because of bad weather was almost double the average. This is a great comparison to 2017 because it clearly shows Hurricane Florence had a much smaller effect than the combination of hurricanes Maria, Irma and Harvey.

This increase hurt the retail trade and hospitality industries which was just enough to disrupt this report.

chart 2

Industry job gains and losses

As I mentioned, the retail trade and leisure and hospitality industries were hurt the most by the hurricane. As you can see from the chart below, the retail trade industry lost 20,000 jobs and the leisure and hospitality industry lost 17,000 jobs.

If those industries grew at their 12-month average, which is shown by the grey bars, the report would have beaten estimates. There was no reason to react negatively to this report. Interestingly, the professional and business services industry added 54,000 jobs. That’s similar to the ADP result. The education and health services added about half the amount of jobs as the 1-year average.

chart 3

Manufacturing added 18,000 jobs which was slightly less than the 1-year average. However, it was better than the expectation for 10,000 jobs created.

There was a sharp revision to the amount of manufacturing jobs created in August. Initially, the report said 3,000 jobs were lost, but now it shows 5,000 were added. The slight weakness in job creation in the regional Fed manufacturing reports isn’t corroborating with the manufacturing job creation in September.

Lowest unemployment rate since 1969

I don’t think the unemployment rate is the most important figure because it is altered by the amount of people in the labor force. The unemployment picture was worse than the unemployment rate showed in 2009 because so many people gave up looking for work.

Those people didn’t retire or permanently give up because millions have come back into the labor force this expansion. If more people come off the sidelines, the unemployment rate might go up. It’s a good sign for people to be confident in the labor market.

I explained my opinion on the unemployment rate because it is one of the biggest headlines coming from this report. In September it hit the lowest rate since 1969. The rate fell from 3.9% to 3.7%, which beat the estimate for 3.8%.

This point about how the unemployment rate doesn’t tell the whole story is perfectly exemplified by this report as the rate fell because the number of people actively looking for work fell from 6.235 million to 5.964 million. The rate fell even though headline job creation missed estimates.

I don’t think the labor market is the best in 49 years. In this case, the BLS report matches perfectly with the jobless claims and the ISM employment reading.


I didn’t finish analyzing the labor report, but you can already tell it was a mixed bag. There were big positive revisions to job creation in July and August. The job creation in September missed expectations.

However, a big reason for the miss was the hurricane. A big negative was the decline in the number of people searching for work. That makes the decline in the unemployment rate not good news.

owever, there have been other months this cycle where the rate increased as more people entered the labor market. I’m not denying the long string of job creation.

I think the unemployment rate doesn’t tell the whole story. 

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View a brief video interview with Don Kaufman on volatility for traders and investors here

Recorded at TradersExpo New York Feb. 25, 2018
Duration: 2:34.