Be Careful Assuming That The September Employment Report Was a Sign of a Weak Economy

Be Careful Assuming That The September Employment Report Was a Sign of a Weak Economy

The Bureau of Labor Statistics (BLS) reported that the nation added 142,000 jobs in September. This was well below the consensus forecast of 201,000 jobs. Adding to the disappointment was the news that the BLS revised the previous two months by a total of 59,000 less jobs than originally reported.

Based on the initial reactions from the financial markets, they appear to be concluding that the employment report is a sign of trouble in the U.S. economy and proof that the Federal Reserve will hold off on raising rates and may even institute another round of Quantitative Easing.

I caution about jumping to those conclusions with one month’s employment report. What many people have not paid attention to is another report that the BLS issues each month. It is called the Job Openings and Labor Turnover (JOLT) report. It is rare that you would ever see this report covered by mainstream media. The JOLT report showed record job openings in August but an inability by companies to fill those positions. This has also been shown in the National Federation of Independent Businesses monthly reports. The bottom line is that both big and small businesses have had trouble finding qualified help. So, the September employment report may not be proof that the economy is slipping into trouble. Rather, it may be indicating that the economy is strong enough that businesses want to hire more people (i.e. the record job openings) but have been unable to hire all that they need. So, which is it? The true answer is probably a mix of both as two sectors-manufacturing and mining & logging-are cutting back on jobs due to a strong dollar and weak oil prices, but other sectors of the economy are showing strength and are having difficulty finding qualified help. This is clearly evident in the construction and technology industries.

If the slowdown in jobs creation is due to a growing labor shortage, then we should monitor the wage reports over the next several months. If businesses cannot find enough qualified help and their sales remain solid, the natural response should be one of two things:

  1. Raise wages (or benefits) in an effort to attract qualified individuals. 
  2. Invest in new plant and equipment to become more efficient and do more without staff additions.

Both of those strategies could boost economic growth rather be a sign of economic trouble. If businesses succeed in attracting more qualified help through higher wages (or benefits) than consumer spending could increase. If businesses commit to reinvesting in plant and equipment then that is a boose in spending, which would help economic growth.

Of course, the flip side is that the slowdown in jobs growth could truly be a sign that the economy is slowing. But, slowing does not mean slipping into a recession. So far, the economic data has not supported any type of a recession argument. Clearly, some sectors of the economy are slowing or are in trouble. That has primarily been the goods producing side of the economy with job losses in manufacturing-due to a strong dollar-and mining & logging-due to weak oil prices. The service sector continues to show steady growth.

So what does that mean for the Fed? It means that the picture is far more blurry as to when the Federal Reserve will raise rates but it does not guarantee anything at this time. 

About The Author

Steve Scranton is the Chief Investment Officer and Economist for Washington Trust Bank and is a CFA charter holder with over 30 years of investment experience with equities, tax-exempt and taxable fixed income securities. Steve actively participates on committees within the bank to help design strategies and policies related to client and bank owned investments. Steve also serves as the economist for the Bank and has been a featured speaker for both client and professional organization events throughout the Northwest.