Strong September job gains

October 4, 2024

Payrolls rose by 254,000 in September, after rising by an upwardly revised 159,000 in August. Public sector payrolls added 31,000 jobs in September, mostly in education. That is above and beyond the usual return to work of more than one million teachers each September. The three-month moving average on payrolls has reached 186,000, up from 140,000 in August.  

Private sector gains were driven by a 78,000 jump in leisure and hospitality jobs. Most of those increases were in food services. That bucks the trend of laying off workers post-Labor Day and suggests that consumers were still stepping out during the month. Healthcare and social assistance came in a close second at 72,000. State and local government, healthcare and social assistance and leisure and hospitality accounted for more than 70% of all employment gains during the month. Those three sectors have dominated gains since June 2023. 

The retail sector added 15,600 new jobs, a modest rebound following three months of declines. Several large retailers have said they will hold holiday hiring close to the levels of last year. Professional business services rose by 17,000, with gains in full-time hiring more than offsetting a drop in temporary hires. 

The situation for goods producers was more mixed. Construction added 25,000 jobs, mostly among non-residential specialty contractors. Robust investment in chip plants and data warehousing is supporting those gains. Anecdotal reports suggest that some empty office space is being converted to data warehousing space. Manufacturing declined by 7,000. The drop was dominated by a decline in motor vehicle and part production; dealer lots are now overflowing with inventories. The silver lining is light vehicle sales, which rebounded to 15.8 million in September, after the Fed cut rates and incentives were sweetened.   

Average hourly earnings rose 0.4% in September, after being revised up to 0.5% in August. That translates to a 4% gain from a year ago, after hitting 3.9% in August. Hours worked edged lower to 34.2 from 34.3 in August. That is slightly below the pace we saw pre-pandemic. The increase in wages was driven by a 0.9% jump in supervisory wages, the oppositive we have seen in recent months. Wages for non-supervisory workers had been driving wage gains earlier in the year. The gains in supervisory wages were concentrated in professional business services.  

Separately, the household survey showed that unemployment fell to 4.1%, with the largest monthly drop in the ranks of the unemployed since March 2022. The data are still in the red when it comes to the “Sahm Rule,” a recession indicator, but just barely. As economist Claudia Sahm herself has said, rules were meant to be broken post-pandemic. It is highly unusual for the unemployment rate to fall once it has started an upward march.

Even more encouraging was the U6 measure of unemployment, which fell to 7.7% from 7.9% in August. That is a measure of stress in the broader economy, as it includes discouraged workers and those forced to accept part-time instead of full-time work due to economic reasons. The level is still well above what we saw in February 2020, but moving in the right direction. The number of multiple job holders jumped to a record high. Multiple job holders moved from counter to pro-cyclical in the 2000s. The numbers have not fallen since the boom of the 1990s.  

The unemployment rate for college graduates fell along with those with less than a high school diploma. Those in between saw no change in unemployment. The data for new college grads is not updated yet, but they should be feeling better about the labor market than just a few months ago.

The participation rate remained unchanged at 62.7%, one-tenth below its post-pandemic high in November of 2023. Prime-age participation fell slightly, with women losing ground and men remaining unchanged. Those out due to childcare problems fell to the lowest in September after surging in August. Those out due to other family or personal obligations, which include elder care, rose to 316,000, the second highest going back to 2003. Those out on parental leave fell to the lowest September since 2017 and the lowest level since 2021. That is despite the widespread expansion of parental leave in recent years.  

The sharp acceleration in employment along with the upward revisions to previous months should alleviate concerns that the labor market is weakening. This is adding to other revisions which revealed that incomes and savings were both stronger than previously thought. Together, they suggest we are entering the fourth quarter with a tailwind. The economy is either experiencing the mother of all soft landings or some on the Federal Reserve are re-thinking the wisdom of an outsized first cut in rates; the former is more likely than the latter given the surge in productivity growth and the recent cooling of inflation measures. This is for the moment, a win to celebrate, although some will likely doubt the Fed’s wisdom in doing a half percentage point cut in September. We still expect two additional quarter point cuts this year, contingent upon more good news on inflation.