September Jobs Report
The September jobs report was very similar to August, coming in slightly below expectations. The U.S. economy produced another month of over 100,000 jobs, a level the Federal Reserve believes will help maintain economic growth and low unemployment. There were 156,000 jobs created in September, which was below economists’ expectations of 170,000 jobs. Both the Unemployment Rate and Participation Rate experienced slight increases, as the unemployment rate climbed from 4.9% to 5.0% and the participation rate moved 62.8% to 62.9%. This rise is these stats is indicative of more workers entering the labor market. Consistent with previous reports, figures for July and August were revised in this latest release. July was revised from 275k to 252k, while August was revised higher from 151k to 167k jobs created. This results in a three-month average of 192,000 jobs created.
Although there were encouraging signs in the report, it is doubtful that the Federal Reserve will raise interest rates at their November meeting which is right before the presidential election. As we have discussed in previous blogs, an important data point the Fed is focused on is wage growth. There was a slight uptick in wages, as the year-over-year figure increased from 2.4% growth in August to 2.6% in September. This still outpaces the current rate of inflation and is showing signs of consistency that Janet Yellen discussed at last month’s Federal Reserve meeting.
Given the similarity of this report to previous months, we believe it is consistent with a labor market that remains supportive of economic growth. The U.S. economy has created an average of 179,000 jobs per month this year, and over 200,000 jobs during the past 12 months which is well above the Fed’s 100k estimate that supports low unemployment and economic growth. However, there remains uncertainty as to whether the pace of job growth and wages is strong enough to support a rise in interest rates when the Fed holds their last official meeting in December. This uncertainty may result in market volatility as traders assess the potential for a rate hike by year end, as well as the potential for volatility around the upcoming presidential election. Given this uncertainty, we have maintained higher than normal cash balances in client portfolios. We will continue to monitor the current environment and deploy cash as we see opportunities to invest at more attractive levels.