By Brai Odion-Esene
WASHINGTON (MNI) – While the sharp fall in the U.S. unemployment
rate in September is welcome news, economists are warning against
reading too much into one month’s data, stressing that more progress
will need to be seen, particularly by the Federal Reserve.
The U.S. economy added 114,000 more jobs in September, and payrolls
in the prior two months were revised up 86,000 — August to +142,000
from +96,000 and July +181,000 from +141,000. Private payrolls rose
104,000 in September.
In the Household survey, the unemployment rate fell to 7.8% in
September, its lowest level since January 2009, as 873,000 more people
were hired, which was twice the 418,000 people entering the labor force,
and labor participation ticked up slightly to 63.6%.
“Obviously there were mixed signals coming from the report but on
net I think it’s positive,” Nomura U.S. Chief Economist Lewis Alexander
On establishment survey, Alexander said there were some back
revisions which makes the total effect of it “somewhat better than just
the headline payroll number.”
“But most of the revisions where actually in government, and it
looks to be related to seasonal issues around education. So I’m not sure
I’d put much stock in that,” he added.
“It’s a mixed bag,” echoed George Mokrzan, Huntington National
Bank’s director of Economics, who told MNI the labor market uptick
indicates a slight improvement third quarter economic growth.
The growth in payrolls is “moderate to the weak side … fairly
consistent with moderate economic growth,” he said.
Raymond James Chief Economist Scott Brown also called the report “a
mixed bag,” saying the drop in the unemployment rate “should be taken
with a bit of a grain of salt.”
Taking everything in combination, however, “it looks like we’re
growing perhaps a bit more than we need to be consistent with the growth
in the population, but we’re not growing anywhere fast enough to make up
for the ground that was lost during the downturn,” Brown said in an
While noting the large amount of variation in the monthly numbers,
Brown said the revisions to August and July “does suggest that a lot of
the fear, that things were slowing down a lot more, may have been
Barclays Michael Gapen wrote in a research note that, “The moderate
job growth that we have seen in the recovery phase — and in recent
months — is sufficient to put gradual downward pressure on the
unemployment rate over time and is likely to lead to the unemployment
rate falling faster than many think is possible in a moderate growth
“The household survey did take on a markedly stronger note, but
smoothing through the monthly volatility suggests the household survey
and establishment survey are giving a similar picture of labor market
conditions,” Gapen added.
Mokrzan warned against reading too much into the drop in the
unemployment rate. “I think it probably will bounce back as the
participation rate stabilizes,” he predicted.
He called the fall in the unemployment rate is a “false signal”
given the still weak participation rate.
“The trend has not changed,” Mokrzan said. “I don’t think the
unemployment rate really reflects the discouragement of some workers in
terms of getting employment.”
Mokrzan said he prefers to focus on the average for the entire
quarter, as the month-to-month variations of the jobs data is very hard
According to MNI calculations, 146,000 jobs were added in the third
quarter, compared to just 67,000 in the second quarter.
Mokrzan said considering the amount of headwinds the economy faced,
especially early in the quarter, job growth of 146,000 for the entire
quarter is not too bad.
“Taking the average of the whole quarter, it indicates a general
modest pick up in the economy,” he said. As a result, Mokrzan said he is
forecasting an increase in third quarter GDP of about 2.5%.
Asked how this report should be viewed from a monetary policy
standpoint, Alexander cautioned against overreacting to just one month’s
data, adding “I don’t think the Fed will.”
“But on the other hand this is a notable improvement,” he said.
In addition, “the decline in the unemployment rate was not driven
by participation alone, so I think it has some impact — but it’s only
one month,” Alexander said.
“We are a long way from the Fed concluding that you are getting
sustained improvement in labor markets,” he said. “We are a step closer
to that now than we were before but we’re a long way from there.”
Brown said what the Fed is focusing on is getting much stronger job
growth “a lot sooner.”
The Fed will view September’s jobs report as “more of the same,” he
continued, and will want to see a consistent trend of substantial
“Today’s report has minimal implications for Fed policy, in our
view,” wrote Bank of America-Merrill Lynch U.S. economist Joshua
“With the Fed just announcing open ended MBS purchases of $40
billion a month, today’s report is unlikely to materially change its
view that the economy is growing too slowly to support robust job
growth,” he added. “We still expect another $2 trillion in quantitative
Gapen said the Fed is likely to view this report as just one data
point, and he does not expect the decline in the unemployment rate to
change the calculus for the Fed at this stage.
“We think the unemployment rate would need to decline further from
here in the October and November reports before the Fed would think
about not fully converting its Treasury purchases under Operation Twist
to open-ended purchases,” he said.
** MNI Washington Bureau: 202-371-2121 **