Financial Professionals

Market Insights

A A A

September Nonfarm Payroll Report

10/05/2012

This morning the Labor Department released its monthly jobs report. Candidly, the internals of the September nonfarm payrolls report will have more social consequences than market consequences.
 
•  September nonfarm payrolls rose 114,000. The estimate was for +110,000 to +125,000. Last month’s +96,000 was revised higher to +142,000.
•  September private payrolls rose 104,000. The estimate was for +125,000 to +140,000. Last month’s +103,000 was revised lower to +97,000.
•  The Unemployment Rate fell from 8.1% to 7.8%. the estimate was for a rise to 8.2%.
 
Other components of the report:
 
•  The household survey increased 873,000, the biggest gain since June 1983.
     o  187,000 of this gain was due to government employment.
•  The labor force grew by 418,000.
•  The biggest jobless drop was among teenagers, declining from 24.6% last month to 23.7% this month.
•  Manufacturing payrolls declined 16,000. The estimate was for unchanged this month. Last month’s -15,000 was revised to -22,000.
•  The Small Business Hiring Index for September fell 2.55% last month.
•  The average hourly work week increased from 34.4 hours to 34.5 hours.
•  For those excited about the drop in the overall unemployment rate, temper the enthusiasm as the underemployment rate was unchanged at 14.7%. 
 
COMMENTARY: There will be one more Nonfarm Payroll report before the election on Friday, November 1. Mainstream media outlets are already positioning the sharp decline in the unemployment rate from 8.1% to 7.8% as “breaking news.”  For investors there is no “breaking news” within this report to alter portfolios. It does not place the monthly asset purchase intentions of the Fed at risk nor does it suggest the initiation of a grand allocation out of fixed income into equities.  The report is consistent with the currently anemic 1.5% GDP growth trajectory. 
 
THE PROOF IS IN THE CHARTS
 
I would suggest for those investors who disagree with my position on this report to view the charts below for a more grand view of U.S. labor conditions.
 
The secular challenges for the U.S. labor market are from the absence of private sector job growth. What will grow the labor market and economy is private sector jobs. In 2009 and the first half of 2010 government job growth contributed to some strong monthly readings for overall nonfarm payroll figures. However, it was artificial and unsustainable. Once the government job growth evaporated, the true poor secular condition of the labor market was revealed. Private sector job growth is the only condition that will heal the labor market’s ills.
  
Private Sector Job Growth 2012 (Current average is +154,000)

Source: Bloomberg
 
Nonfarm Payroll Job Growth 2012 (Current average is +154,000)

Source: Bloomberg
 
U.S Nonfarm Payroll Government Sector, January 2009 to Present

Source: Bloomberg
 
U.S Nonfarm Payrolls, January 2009 to Present

Source: Bloomberg

Virtus Investment Partners provides this communication as a matter of general information. The opinions stated herein are those of the author and not necessarily the opinions of Virtus, its affiliates or its subadvisers. Portfolio managers at Virtus make investment decisions in accordance with specific client guidelines and restrictions. As a result, client accounts may differ in strategy and composition from the information presented herein. Any facts and statistics quoted are from sources believed to be reliable, but they may be incomplete or condensed and we do not guarantee their accuracy. This communication is not an offer or solicitation to purchase or sell any security, and it is not a research report. Individuals should consult with a qualified financial professional before making any investment decisions.