US labor market cooled in September

The September labor report signals a cooler labor market, but underlying conditions remain solid enough to reduce the urgency of an October Federal Reserve rate hike rather than imply a sharp economic downturn.

• Nonfarm payrolls increased by only 29,000 in September versus consensus expectations of 90,000, while July and August were revised down by a combined 60,000 jobs.
• Private payrolls rose by 46,000 versus an expected 81,000, but household employment increased by 406,000 and the civilian labor force expanded by 485,000.
• The unemployment rate edged up to 4.2% from 4.1% in August, while the broader U-6 labor-impairment rate fell to 7.6% and participation rose to 61.8%.
• The author attributes part of the weak payroll result to seasonal distortions from Labor Day falling on September 7, citing a 13,000 decline in local-government payrolls and expecting upward revisions.
• Supporting indicators were stronger: ADP reported 90,000 private-sector jobs, initial claims were 197,000 for the week ended September 25, and announced layoffs fell 18% month over month to 43,281.
• Second-quarter GDP was revised from 1.5% to 2.2%, core GDP from 4.2% to 4.6%, while annual wage growth slowed to 3.0% from 3.7% in February.

Takeaway: The mixed report supports delaying another Federal Reserve hike from October to December, while the strong household survey, low claims and firm GDP argue against treating the payroll weakness as evidence of a material recession risk.