October 5, 2018
- Headline: The U.S. economy added 134,000 jobs in September, well below market expectations of roughly 185,000. To give some perspective, this was the slowest pace of growth in a year. The unemployment rate declined 0.2 percentage points to 3.7%—the lowest since 1969—while the labor force participation rate remained unchanged at 62.7%. Hiring figures for July and August were revised up by a combined 87,000 jobs, with August figures alone revised to 270,000 from 201,000. Average hourly earnings rose by 8 cents in September and were up 2.8% year-over-year, cooling off slightly from August.
- Executive Summary: Slower-than-anticipated hiring activity in September was somewhat expected due to Hurricane Florence. The fallout from the hurricane was most apparent in the restaurant & bars category, which registered a decrease of 18,200 jobs for the month. While the storm may have distorted measures of earnings and working hours to some extent, it remains likely that hiring activity will cool off somewhat and settle into a sustainable pace after a relatively strong run in the first half of the year. Other recent signs of economic strength include improvements in leading indicators and bond yields. Notably, there was a sharp uptick in the Institute for Supply Management’s non-manufacturing index, potentially raising expectations for GDP growth in the third and fourth quarters. Additionally, the 10-year Treasury yield increased over the past week to 3.22%—its highest level since 2011. The increase was largely due to strong hiring activity in the private sector and the Federal Reserve chairman’s indication that that the central bank may have more room than previously thought to lift interest rates.
- Wage Inflation: September’s year-over-year wage growth reached 2.8%. Though this represents an improvement over earlier periods of the expansion, it is not historically commensurate with the current level of unemployment. The most recent time unemployment was near today’s levels—during the dot-com boom—wage growth was in the 3.5%-to-4% range. Nevertheless, the consensus among economists is that wage growth should accelerate as the labor market continues to tighten. Overall, today’s jobs report will keep the Fed on track to raise short-term interest rates at least one more time this year and continue to reduce its balance sheet, which currently stands at just under $4.2 trillion.
- Job Growth Outlook: U.S. jobs growth has experienced its longest streak of monthly gains on record. Tax reform is continuing to add stimulus to the economy and this momentum could extend the current cycle further. However, additional jobs gains will likely be tempered given that the economy is operating at near-full capacity, an aging population is shrinking the available labor pool and productivity growth is low by historical standards.
- CRE Sector Employment:
- Construction: The construction sector added 23,000 jobs in September and is up by 315,000 jobs year-over-year.
- Industrial: The manufacturing sector added 18,000 jobs in September and has added 278,000 jobs over the year, much of them in the durable goods sector. Transportation & warehousing added a solid 24,000 jobs in September, with warehousing & storage adding 8,000 jobs and couriers & messengers adding 5,000 jobs. For the year, hiring in transportation & warehousing has increased by 174,000.
- Retail: The retail sector shed 20,000 jobs in September, with large declines in building materials & garden supply stores (-4,500 jobs), clothing & accessories (-3,900) and general merchandise stores (-4,000). Food services & drinking places also shed 18,200 jobs in September, a likely fallout of Hurricane Florence.
- Office: Professional & business services continued trending up in September, adding 54,000 jobs. The sector has added 560,000 jobs over the past year. Professional & technical services added 18,900 jobs in September, while administrative & support services added 30,000 jobs. Employment in health care & social assistance rose by 29,800. Health care employment increased by 25,700, with hospitals adding 12,000 jobs. The health-care sector has added 302,000 jobs over the year.
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Global Chief Client Officer and Senior Economic Advisor
Richard Barkham, Ph.D.
Global Chief Economist, Head of Global Research & Head of Americas Research