US Watch
Group Economics
Macro & Financial Markets Research
Maritza Cabezas, +31 20 343 5618
US labour market rebounds
3 October 2014
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•
The September’s nonfarm payrolls report (+248K) adds to data suggesting that the economy will
continue to grow above trend. The unemployment rate fell to 5.9%, a six year low.
The labour market data strengthen the case for a Fed rate hike in June 2015.
Job growth picks up in September
labour force due to a weak labour market. The Fed’s dilemma
Job growth showed a solid reading in September. Nonfarm
is whether loose monetary policy will bring these workers back
payrolls increased by 248K, following upward revisions in the
to the labour market or whether additional easing will only
past two months of 69K. The change in nonfarm payrolls was
encourage inflation pressures. We think that retired workers
well above the consensus forecast (215K). Meanwhile, the
leaving the labour force is the key driver of lower participation
unemployment rate in the household survey fell to 5.9% in
rates, since a measure of unemployment that partially takes
September from 6.1% the previous month. The job recovery
into account worker discouragement, the U6 report, fell to
has gained force this year. In the first nine months of the year,
11.8% in September from 12% the previous month, its lowest
average job growth was 226K and the unemployment rate
since October 2008.
declined by 0.8 percentage points in this same period. This
data is consistent with recent reports on the labour market,
Fed’s response
including the ADP National Employment Report and the ISM
The labour market data makes a rate hike in June 2015 more
employment composite index, which point to a marked
likely, which is more or less what the FOMC members have
improvement. The former report suggests that the increase in
been signalling and in line with our forecast. The past stronger
employment in small sized companies was the strongest
nonfarm payrolls reports and the fall in unemployment
(88K). This is a positive signal since the recovery of small firms
numbers already resulted in a more nuanced tone from the
is essential to lift employment.
more cautious members, including the Chair of the Fed. Some
FOMC members even judge that the progress already
Industry breakdown strong across the board
achieved in the labour market as “sufficient“ to warrant a
The industry breakdown of the 248K increase in nonfarm
change in policy”. Other members are, however, still
payrolls featured an acceleration in the private service sector
concerned about the sluggish wage growth and low inflation,
which increased by 219K. Professional services showed the
but we expect that the strong labour market will give sufficient
largest gain at 81K. Meanwhile, goods producing employment
support for the economy to grow above trend and to push
increased by 29K, with only a 4K increase in manufacturing,
wages up. This should shift the more dovish members to a
suggesting that there is still room for improvement in this
more hawkish stance over the coming months.
industry,
given
the
positive
trend
in
the
employment
component of the manufacturing surveys in the past months.
Nonfarm payrolls gains spread across activities
The average workweek has been remarkably steady and
Change in ‘000s
edged up to 34.6 hours. Average hourly earnings left the yearago increase in wages at 2.0% – a figure that has been
relatively flat in the past months. Given the ongoing tightening
Accomodation and food
Manufacturing
Professional services
in the labour market, wage growth is likely to pick up going
Health
forward.
Government
Participation rate continues to decline
Meanwhile the participation rate, which shows the share of
working-age people in the labour force decreased 0.1
percentage points to 62.7%. The participation rate, is a closely
watched indicator by the Fed’s policymakers. It has been
declining as a result of workers retiring and people leaving the
Construction
Retail trade
-30
20
Ave. monthly change over one year
Source: Thomson Reuters Datastream
70
Change Aug. - Sep 2014.
2
US labour market rebounds – 3 October 2014
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