US jobs report: party like it’s 1969

Below the disappointing headline, the September jobs report was quite strong. Topline payroll growth declined to 134,000; Hurricane Florence likely explained the weakness. About 300,000 people were out of work because of bad weather, compared to 85,0000 out of work because of bad weather in an average month. Upward revisions added 87,000 jobs over the last two months translating into a stout 190,000 three-month moving average pace.

The labor market is getting to be one of the tightest on record. The unemployment rate dropped two-tenths of a percentage point to 3.7%, the lowest level since 1969. According to J.P. Morgan, the unemployment rate for those workers out of a job for less than six months is the lowest since the 1950s! The broadest measure of unemployment, U6, while declining, has yet to breach the low reached in 2000.

Manufacturing added 18,000 jobs, a positive after weak job gains last month. In fact, goods-sector job growth has been accelerating as the pace of service job growth has flatlined. The continued strength in manufacturing suggests that trade tensions have had a negligible effect on hiring thus far. Temporary help added jobs for a third month in a row, a good sign for future job growth.

The drop in the unemployment rate came as the labor force participation rate held constant at 62.7%. Over the last few years, a lot of analysts expected the labor force participation rate to decline given the USs aging population. But a continual flow of workers from the sidelines back into the labor force has kept the participation rate steady. Throughout the period, the participation rate for prime-age workers accelerated. Strong flows into the labor force have supported robust job growth despite the unemployment rate getting very low.

Year-over-year, average hourly earnings decelerated modestly. Wages ticked up sharply last September in part because of Hurricanes Harvey and Irma, making a tough comparable for this September. But on a three-month annualized basis, average hourly earnings are up 3.75%, the second highest pace of the cycle, only behind last September’s temporary surge. Average weekly wages were up 3.4%, matching the fastest pace since 2010. Lots of leading indicators suggest that wage growth will continue to modestly accelerate in the coming quarters.

The robust jobs market is part of the reason why we think there may be room for more upward surprises for the US economy. If wage growth moves up more than expected, there may be scope for consumer spending to accelerate. Consumer spending has been constrained by muted pay growth. If that trend ends, some pent-up demand from consumers could be unleashed. A sustained pick up in productivity would likely keep inflation pressures controlled even as wage growth rises. That would mean that real household incomes would pick up, another welcome surprise. Faster wage growth could even bring more potential workers off the sidelines, supporting the already robust pace of job growth even longer.

Follow Principal Global Investors on LinkedIn

__________________________________________________

Unless otherwise noted, the information in this document has been derived from sources believed to be accurate as of October 2018. Information derived from sources other than Principal Global Investors or its affiliates is believed to be reliable; however, we do not independently verify or guarantee its accuracy or validity. This material contains general information only and does not take account of any investor’s investment objectives or financial situation and should not be construed as specific investment advice, recommendation or be relied on in any way as a guarantee, promise, forecast or prediction of future events regarding an investment or the markets in general. The opinions and predictions expressed are subject to change without prior notice. Any reference to a specific investment or security does not constitute a recommendation to buy, sell, or hold such investment or security, nor an indication that Principal Global Investors or its affiliates has recommended a specific security for any client account.

Subject to any contrary provisions of applicable law, Principal Global Investors and its affiliates, and their officers, directors, employees, agents, disclaim any express or implied warranty of reliability or accuracy and any responsibility arising in any way (including by reason of negligence) for errors or omissions in this document or in the information or data provided in this document.

Past performance is no guarantee of future results and should not be relied upon to make an investment decision. Investing involves risk, including possible loss of principal.

Links contained in some blog posts may take you to third-party sites and Principal Global Investors makes no guarantees to the accuracy of the information provided. Principal Global Investors does not endorse, authorize, or sponsor any third party content.

The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.

This post contains general information only and does not take into account an individual’s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given before making an investment decision

Insurance products and plan administrative services provided through Principal Life Insurance Co. Principal Funds, Inc. is distributed by Principal Funds Distributor, Inc. Securities offered through Principal Securities, Inc., 800-547-7754, Member SIPC and/or independent broker/dealers. Principal Life, Principal Funds Distributor, Inc. and Principal Securities are members of the Principal Financial Group®, Des Moines, IA 50392.
623809