Whether the September jobs report was encouraging or discouraging is largely a matter of perspective. The market’s initial bearish reaction sent a clear message that investors were less than pleased with the numbers.
But a decent bounce back shortly after the early plunge had a distinct “not so fast” quality to it — there may still be an upside to the disappointing jobs report.
It’s a debate that’s been witnessed several times over the past few months, of course, with no clear winner yet. And, with the market content to continue waffling in a proverbial no-man’s-land, it doesn’t look like a winner will emerge today either.
Though, if one takes a very close look at all the employment data, the scales start to tilt in a slightly discouraging direction … and that’s actually a good thing.
September Jobs Report Numbers
Without getting too deep into the philosophical aspects of the data, the ideal level of job growth and ideal level of unemployment is actually anything that’s not too hot or too cold.
That is, net payroll losses or a dramatic rise in the unemployment rate may kick-start an economic downtrend that the Federal Reserve can’t stop with any type of plausible policy, while soaring job growth and plunging unemployment may prompt the Fed to raise rates early and often, crimping fragile economic growth before it even gets a chance to get rolling on its own. Investors should wish for a “Goldilocks” zone … somewhere in between that is neither strong enough nor weak enough to force Janet Yellen to meddle in the near-term.
In the long-term, though, the employment trend data generally isn’t stymied or spurred by the Fed’s action, despite its mission.
With the philosophy in mind, the September jobs report was in that “just right” zone for the near-term. The unemployment rate stood pat at a reasonably healthy 5.1%, and though the 142,000 new jobs created last month came up short of 205,000 new jobs analysts were expecting, we’re still making measurable forward progress.
Based on that data alone, it’s not terribly surprising Friday’s early dip was relatively well contained. While less than great, it’s data that could inspire the Fed to postpone the presumed December rate hike until March (or later) without forcing Janet Yellen and her cohorts to panic.
The Rest of the Numbers
However, the two key pieces of data — the unemployment rate and payroll growth — don’t tell the whole story. When one takes a step back and looks at all the relevant data, they see much more.
And in this case, they see something much more alarming.
Though not touted by the Department of Labor or the media, the employment-population ratio actually fell back to a multi-month and multi-year low of 59.2% last month.
The typical counter to that concern is the mass retirement of the baby boomers — they don’t want to work. And to be fair, that’s likely to be at least part of the reason the employment-population ratio has been whittled down from December 2006’s peak of 63.4%. But a mass retirement, however, doesn’t explain 420 basis points worth of difference.
A big chunk of those missing workers is buried on the “not in labor force, but want a job” tally. That figure is now 5.95 million, down from the August 2012 peak reading of just under 7 million, but still 3.8% of the total labor force of 156.715 million.
It’s an important number to keep tabs on, since those 5.95 million individuals are not being considered in the government’s official unemployment rate.
Also noteworthy is the number of people who are officially unemployed (counted by the Department of Labor) as a proportion of the total size of the labor pool. The nation’s 7.915 million unemployed individuals make up 5.1% of the total labor force, but that figure was as low as 4.4% in 2007, and as low as 3.9% in 2000 … and the “not in the labor force but want a job” figures were nowhere near what they are now back then.
In other words, we’ve not yet reached our most plausible level of employment yet, and we already seem to be hitting a headwind.
Bottom Line
For better or worse, the month-to-month unemployment rate and payroll-growth — and the psychology behind it — like the most featured parts of the September jobs report can be steered and tweaked by the Fed.
The longer-term participation trends and number of unemployed, however, are systems of a much deeper fundamental/systemic problem that is likely out of the Fed’s control.
As for what it all means to investors, today’s data is actually good in the near term since it gives the Fed a means to prop the market up. In the long run, though, any data you’re not seeing clearly bodes poorly for stocks, as growth will be limited by lackluster employment levels.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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