151002 us employment

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US Watch

Group Economics Macro & Financial Markets Research Maritza Cabezas, +31 20 343 5618

Job market steps down a bit

2 October 2015 • •

The US labour market was weaker than expected in September. Employment rose by 142K up from 136K the previous month. The unemployment rate was unchanged at 5.1%. We think this report will not substantially change the view of the Fed regarding the strength of the labour market. However, a sustained improvement in the job market in the coming months will be needed to support our view of a rate hike in December.

Job report weaker than expected

Yellen asks for sustained improvement in job market

The September payroll report was weaker than expected.

As for the Fed, we think this report will not change the view of

Nonfarm employment increased 142K, below the 212K

the central bank regarding the strength of the labour market. It,

average for the first eight months of this year. There were also

however, puts more weight on the incoming job market reports

downward revisions in the previous two months amounting to 59K. The other key aspects of the establishment survey were also a bit disappointing. Average hourly earnings were unchanged from an increase of 0.4% the previous month. This left the year-on-year increase unchanged at 2.2%. Other

to be released before the December meeting. It will take now a sustained improvement in the labour market to keep a December rate hike on track. Chair Yellen mentioned during her latest intervention on “Inflation Dynamics and Monetary Policy”, a sustained improvement in the labour market was needed, despite that the unemployment rate may now be close

aspects of the report showed that the unemployment rate

to its longer run normal level – around 4.9%. A sustained

remained at 5.1% in September. This occurred alongside a

labour market improvement, according to Chair Yellen, should

participation rate that edged down to 62.4%, from 62.6% the

reduce slack in other dimensions, including labour force

previous month. Broader measures of underutilisation

participation rate and persons employed involuntary part-time

improved, as persons employed involuntarily part-time for

from economic reasons.

economic reasons ticked down to 10%. Overall, we see the labour market shifting down slightly, but after a period of robust

Market expectations of rate hike dampened

job creation.

Following the jobs report, according to futures markets, investors priced in a slightly lower probability of Fed rate hikes

Goods-producing sectors remain weak

this year, leading to lower short-term Treasury yields. Indeed,

Goods-producing sectors have been having some hard times

October is off the table now. Investors see an 8% likelihood of

in the previous two months, with employment dropping 13K in

an increase during the October FOMC meeting compared with

September, after falling 22K in August. Manufacturing

16% before the jobs report. The odds are now 28% in

employment remains weak (-9K). Meanwhile, Job growth in the

December compared to 36% previously.

service sector showed some improvement, gaining 131K. Leisure and hospitality continue to look healthy (+35K),

US economy adds 142K jobs

together with retail trade (+24K).

000’s

Wage mystery Average hourly earnings, were unchanged (0%). On a yearon-year basis, wage growth was 2.2%, also unchanged from the previous month. We think that slower productivity growth could be keeping wages supressed, since higher wages in a context of slow productivity growth reduce profit margins.

%

600 400 200 0 -200 -400 -600 -800 -1000

12 10 8 6 4 2 0 06

07

09

10

Non farm payrolls (lhs) Source: Thomson Reuters Datastream

12

13

15

Unemployment (rhs)


2

Job market steps down a bit – 2 October 2015

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