Nonfarm Payrolls Increase 134K, Unemployment Falls to 3.7%

In a mixed report that keeps expectations for Federal Reserve policy in line, September payroll growth wasn't as strong as expected but the unemployment rate went down and August gets a big upgrade.

Nonfarm payrolls rose a lower-than-expected but still respectable 134,000 with August revised 69,000 higher to 270,000. The unemployment rate fell 2 tenths to 3.7 which, in contrast to payroll growth, is stronger than expected and reflects another drop in the number of people actively looking for jobs, now at 5.964 million and well down from 6.235 million in August. Not raising any fuss are wage indications from average hourly earnings which rose an as-expected 0.3 percent for a year-on-year 2.8 percent that is 1 tenth below expectations.

Looking at payroll data, manufacturing added a stronger-than-expected 18,000 in September with August revised into the plus column to 5,000 vs an initial minus 3,000. Construction added a very solid 23,000 and mining, which is perhaps the strongest of any industry, up 5,000 which is very strong for the sector's size. Retail, however, shed 20,000 payroll jobs with trade & transportation, where conditions are tight due to the strength of demand, up 8,000 following a 55,000 surge in August. Professional & business services rose a very strong 54,000 with the subcomponent of temporary help up a solid 11,000, both indicating that employers are scrambling to fill positions.

The key in all of this is wages and they're showing steady -- but not accelerating -- pressure. Average hourly earnings rose an as-expected 0.3 percent in the month for a year-on-year 2.8 percent. Here the monthly revision to August, down 1 tenth to 0.3 percent, is favorable, favorable that is if you're the Federal Reserve worried about wage inflation.

The impact of Hurricane Florence, which struck the Carolinas at the end of the report's mid-month sample week, is uncertain and is probably marginally unfavorable. But this is unimportant. What is important is that the labor market is adding jobs at a solid rate, that the number of people looking for jobs keeps going down and that wage pressures are steady and firm, all confirming expectations for a steady path of gradual rate hikes by the Fed.