HFF Analysis of the September 2017 BLS Employment Report

Tuesday, October 10, 2017

HFF is pleased to report on the latest employment expansion statistics from September 2017. Our research team analyzes trends and data to give readers a better view into the current state of the economy and how employment is being affected.

Employment Expansion

The U.S. lost 33,000 jobs in September, the first negative monthly reading since 2010, which ended the longest stretch of job growth on record. The jobs picture was heavily distorted by Hurricane Harvey and Hurricane Irma, and we expect to see payrolls revised upwards next month. While the storms initially depress payrolls, jobs will probably get a subsequent boost as construction and utility workers help rebuild housing and infrastructure. Though the measure of hiring fell, the unemployment rate showed improvement, dropping to 4.2 percent in September, the lowest level since early 2001.

The labor force participation rate rose to 63.1 percent from 62.9 percent the month prior. The Labor Department also reported that 60.4 percent of the population was employed in September, a higher rate than at any point in more than eight years. Additionally, a rise in hourly wages adds to speculation the FOMC will see inflationary pressure in markets, thus increasing the probability of a rate hike at their December meeting.

Average Monthly Payroll Creation Slowing

The current expansion cycle is similar to the 1991 to 2000 cycle and greater than 2004 to 2007 expansionary period, but only after a significantly delayed recapture of the nation’s previous employment peak.

The U.S. created 2.16 million jobs in 2016, the smallest gain for a calendar year since 2011. The last six years’ job growth is on par with the expansionary period from 1992 to 1995.

In 2016, the U.S. created 2.16 million jobs. But nearly 32 percent of private-sector job gains came from construction, manufacturing, retailers, hotels, restaurants and temporary help agencies, all typically low-paying sectors. Professional Business Services, the industry sector most closely aligned with office using employment, experienced expansion of 528,000 jobs in the year ending September 2017. Fortunately, Temporary Staffing only accounted for 113,000 (approximately 21 percent) of these positions. Temporary Staffing is slowing, however, implying hesitance in hiring the lowest cost employees companies can find in tentative expansions.

Education and Health Services, which has performed well throughout the downturn being a recession-resistant industry, expanded by 472,000 jobs in the year ending September 2017. Mining and Logging continues to undermine headline growth but continued to grow positive this month with approximately 60,000 jobs being added in the year ended September 2017.

Unemployment Rate

The Underemployment Rate augments the Unemployment Rate to include anyone marginally attached to the labor force that is either not employed or employed only part time. Fortunately, the Underemployment Rate has descending from a recent high of just over 17 percent. However, the spread between the two rates is near an all-time high and shows no sign of rapid compression. The Unemployment Rate dropped down to 4.2 percent in September from 4.4 percent the prior month, the lowest level since early 2001. The Underemployment Rate came in at 8.3 percent in September, a 30 basis point drop from the prior month, signifying the lowest underemployment rate in over 10 years. 

Wage Growth

As the labor force approaches “full employment,” much attention has been cast to wage growth. The past three recessions were preceded by a period of FOMC tightening. Average hourly earnings growth exceeded four percent in each of these periods as overall economic activity became reflected in strong wage growth. With the current year-over-year percent wage growth registering approximately 2.9 percent, one could argue overall economic activity has not yet reached levels that precede recessionary periods (often accompanied if not triggered by FOMC tightening to counter inflationary forces).

Sources: HFF Research, Bureau of Labor Statistics, Department of Labor, Bloomberg

Prepared by Morgan Allen, HFF Research Analyst, and Jimmy Hinton, HFF Managing Director of Research

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