Non-Farm Payrolls Add 136K Jobs, Unemployment Rate At 3.5%

Is there slack in the labor market or isn't there? Judging by September's 3.5 percent unemployment rate, a rate that falls below Econoday's consensus range, there may not be much available capacity at all. Yet wage pressures, as measured by average hourly earnings, eased significantly in September for a 2.9 percent year-on-year growth rate that is the lowest since July last year.

Payroll growth itself is running a notch or two below last year and is well under 200,000, but it is still very solid as well as steady and would look to further test the labor market's available capacity. Nonfarm payrolls rose 136,000 in September with August revised sharply higher, up an additional 38,000 to 168,000. Yet manufacturing, the economy's weak link right now due to slowing global trade, is showing weakness, down 2,000 in September versus expectations for a 3,000 gain. Over the last three months this sector has added only 4,000 payroll jobs, a detail that won't miss the eye of Federal Reserve policy makers who are focused specifically, and with concern, on the health of this sector.

But the other half of this report's theme is strength, that is steady demand approaching limited supply. The pool of available workers fell 545,000 in the month to 10.6 million which is an eight-year low. Included in the pool are the number of unemployed which fell 275,000 in the month to 5.8 million. Yet the drying up of this pool has yet to trigger sustained wage inflation, at least in September which on a monthly basis came in unchanged though the prior three months did show acceleration at 0.4 percent in August followed by three prior 0.3 percent gains.

The break lower for economic growth being signaled by anecdotal data is not yet, perhaps outside manufacturing that is, being confirmed by employment which remains solid. For policy makers the danger that the economy is running ahead of what the labor market can sustain is probably secondary to the danger that the nation's manufacturing base may be taking a direct hit. Yet there are risks to extended rate cuts, underscored by the 3.5 percent unemployment which is the lowest since December 1969.