A September Surge in New Jobs with Unemployment Dropping to 5.9%

October 3, 2014

by Doug Short

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

Total nonfarm payroll employment increased by 248,000 in September, and the unemployment rate declined to 5.9 percent, the U.S. Bureau of Labor Statistics reported today. Employment increased in professional and business services, retail trade, and health care.

Today's report of 248K new nonfarm jobs was substantially better than the Investing.com forecast of 215K, and it was accompanied by a major upward revision of the August data from 142K to 180K new jobs. The unemployment rate dropped from 6.1% to 5.9%, beating the Investing.com expectation of no change.

The unemployment peak for the current cycle was 10.0% in October 2009. The chart here shows the pattern of unemployment, recessions and both the nominal and real (inflation-adjusted) price of the S&P Composite since 1948.

Unemployment is usually a lagging indicator that moves inversely with equity prices (top chart). Note the increasing peaks in unemployment in 1971, 1975 and 1982. The inverse pattern becomes clearer when viewed against real (inflation-adjusted) S&P Composite, with its successively lower bear market bottoms. The mirror relationship seems to be repeating itself with the most recent and previous bear markets.

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The second 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 dropped below 3% in April of last year and is now at its post-recession low of 1.9%.

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The next chart is an overlay of the unemployment rate and the employment-population ratio. This is the ratio of the number of employed people to the total civilian population age 16 and over.

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The inverse correlation between the two series is obvious. We can also see the accelerating growth of women in the workforce and two-income households in the early 1980's. Following the end of the last recession, the employment population has been range bound between 58.2% and 59.4% — the lower end of which that harkens back to the 58.1% ratio of March 1953, when Eisenhower was president of a country of one-income households, the Korean War was still underway, and rumors were circulating that soft drinks would soon be sold in cans.

The latest ratio of 59.0% is near the top of a narrow range since the end of the last recession.

For a confirming view of the secular change the US is experiencing on the employment front, the next chart illustrates the labor force participation rate. To two decimal places we're at 62.73%, a level not seen since the late 1970s.

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The employment-population ratio and participation rate will be interesting to watch going forward. The first wave of Boomers will continue to be a downward force on this ratio. The oldest of them were eligible for early retirement when the Great Recession began, and the transition of the Boomer cohort to full retirement age won't end until 2030.

What is the average length of unemployment? As the next chart illustrates, we are perhaps seeing a paradigm shift — the result of global outsourcing and efficiencies of technology. The post-recession duration of unemployment remains high at 31.5 weeks, although that's well off the 40.7-week all-time high in late 2011.

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Note: The start date of 1948 in the charts above was determined by the earliest monthly employment data collected by the Bureau of Labor Statistics. The best source for the historic data is the Federal Reserve Bank of St. Louis.

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