September Jobs Report: New Jobs Below Forecast, UR Ticks Up to 5.0%

This morning's employment report for September showed a 156K increase in total nonfarm payrolls along with a 23K downward revision for July and a 26K upward revision for August (a net revision loss of 7K). The unemployment rate rose from 4.9% to 5.0%. The consensus was for 175K new jobs and the unemployment rate to remain at 4.9%.

Regarding the 0.1% rise in the unemploment rate: At two decimal places, the change was only 0.04% (from 4.92% to 4.96%).

Here are two excerpts from the Employment Situation Summary released this morning by the Bureau of Labor Statistics:

Total nonfarm payroll employment increased by 156,000 in September, and the unemployment rate was little changed at 5.0 percent, the U.S. Bureau of Labor Statistics reported today. Employment gains occurred in professional and business services and in health care....

The change in total nonfarm payroll employment for July was revised down from +275,000 to +252,000, and the change for August was revised up from +151,000 to +167,000. With these revisions, employment gains in July and August combined were 7,000 less than previously reported. Over the past 3 months, job gains have averaged 192,000 per month.

Here is a snapshot of the monthly percent change in Nonfarm Employment since 2000. We've added a 12-month moving average to highlight the long-term trend.

PAYEMS Monthly Change

The unemployment peak for the current cycle was 10.0% in October 2009. The chart here shows the pattern of unemployment, recessions and the S&P Composite since 1948. Unemployment is usually a lagging indicator that moves inversely with equity prices (top series in the chart). Note the increasing peaks in unemployment in 1971, 1975 and 1982. The mirror relationship appears to be repeating itself with the most recent and previous bear markets.

Unemployment and the Market

Now Let's take a look at the unemployment rate as a recession indicator, or more specifically the cyclical troughs in the UR as a recession indicator. The next chart features a 12-month moving average of the UR with the troughs highlighted. As the inset table shows, the correlation between the MA troughs and recession starts is remarkably close. Note that technically the MA is still trending downward in the latest report, but we have to calculate it to three decimal places to see the MoM change: 4.945% to 4.938%.

Unemployment and Recessions

We've added another chart to illustrate the reality of the unemployment rate - the unemployment rate divided by the labor force participation rate.

The next chart shows the unemployment rate for the civilian population unemployed 27 weeks and over. This rate has fallen significantly since its 4.4% all-time peak in April 2010. It is now at 1.2%, down from 1.3% the previous month.

Unemployed 27+ Weeks