What Will Really Matter in the September Unemployment and Payrolls Report

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Friday’s key employment report from the U.S. Department of Labor will be closely watched. Unfortunately, there is a serious chance that the report may be very distorted and hard to predict. Hurricane Harvey had an impact at the end of August and into the start of September, but then Hurricane Irma nailed Florida shortly after September was underway.

24/7 Wall St. does not want its readers to get spooked or tricked into thinking that this is going to be a game-changing employment report. We are going to give the entire metrics a pass on the rate and the payrolls, but we will be paying very close attention to a few other key issues.

The first issue is what the Bureau of Labor Statistics designates for its “impact from hurricanes” in the report. This will set the tone for how the market interprets any huge gains or large decreases.

The second issue will be the hourly earnings, or wage inflation. The Federal Reserve is watching this closely. So far the hourly rate is up 2.5% in 2017 through the end of August. Stronger wages will imply more of a floor under inflation, and that justifies more rate hikes. The 0.1% average gain in August is expected by Bloomberg to be up 0.3% for September.

The third issue concerns the pickup in the labor force participation rate. That rate was just 62.9% in August, down from a cycle-peak of 66.4% in January of 2007. Unfortunately, that rate is projected to be down at 62.8% by Bloomberg.

A fourth issue will be which industries are really generating the jobs. Manufacturing has been rising, and the recent uptick in car demand may be helping further on top of construction jobs in the wake of two storms. It would seem that retail and hotel/hospitality may have seen a drop, but that might be made up by workers moving instantly over into construction and recovery effort jobs, while restaurants and hotels slowly come back. September and the first two-thirds of October are also the lull before retailers increase their seasonal hiring ahead of the all-important holiday surge.

A fifth issue, which seems the most important but isn’t, is the actual unemployment rate. You can argue all day long about labor force participation rates and people working part-time for economic purposes, but the Fed and its chair, Janet Yellen, are going to have a hard time being dovish if the unemployment remains at 4.4% much longer. Bloomberg expects that number to be flat.

As far as the actual estimates, these are offered below:

  • Nonfarm payrolls expected to be up 100,000 (versus 156,000 in August).
  • Private sector payrolls expected to be up 117,000 (versus 165,000 in August).
  • The official unemployment rate is expected to be flat at 4.4%.
  • Average hourly earnings are expected to be up 0.3% on the monthly number and 2.6% on the annual number.
  • Average workweek is expected to be flat at 34.4 hours.