The employment situation is a set of labor market indicators. The unemployment rate measures the number of unemployed as a percentage of the labor force. Nonfarm payroll employment counts the number of paid employees working part-time or full-time in the nation's business and government establishments. The average workweek reflects the number of hours worked in the nonfarm sector. Average hourly earnings reveal the basic hourly rate for major industries as indicated in nonfarm payrolls. Why Investors Care
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Highlights
Katrina swept away more than 200,000 jobs, as non-farm payrolls contracted by 35,000 in September. Still, the level is far less than the 150,000 decline that was expected. Revisions offered more good news, adding a net 77,000 in July and August. The dollar firmed in initial reaction to the data, while bonds fell sharply. Note that losses in the bond market may be limited by the data's tame inflation readings.
The Labor Department said it could not exactly quantify the impact of Katrina, estimating payrolls would have grown an in-trend 200,000 in the month excluding Katrina. It said Rita's impact on the data, which was collected at mid-month before the storm hit, was negligible. Note that excluding the effects of Katrina and Rita may have limited value, as the hurricanes sent shocks through the economy as a whole.
Damage was apparent in the unemployment rate, which jumped two tenths to 5.1%. But the labor force participation rate held steady at 66.2% while the employment-to-population ratio slipped only a tenth to 62.8%.
The Labor Department said Katrina particularly boosted temporary hiring, which rose 32,000, and less construction, which did rise 23,000. But the promise of rebuilding points to strong construction gains ahead. Manufacturing jobs once again contracted while service jobs posted a rare decline. Retail jobs plunged 88,000 while leisure & hospitality fell 80,000, both reflecting Katrina's damage.
Wage readings were tame. Average hourly earnings rose 0.2%, up 2.6% year-on-year and in line with productivity growth, while the average workweek was unchanged at 33.7 hours. The risk that inflation is suddenly heating up, both from energy costs and demand pull as manufacturers stockpile materials, is a hot topic at the Federal Reserve. These results won't raise the temperature at the Fed.
The employment report typically sets the tone for the coming month's data, offering clues that are especially needed after the hurricanes. These results suggest the impact, at least from Katrina, may be a bit less severe than expected.
Nonfarm payroll employment increased 169,000 in August after posting larger gains in the two previous months. Excluding the impact of Katrina, economists are predicting nonfarm payrolls to have increased 190,000 for the month. The civilian unemployment rate inched down to 4.9 percent in August; a year ago the jobless rate stood at 5.4 percent during the month. The Bureau of Labor Statistics posted information on their web site on how they plan to account for Katrina (and Rita).
Nonfarm payrolls Consensus Forecast for Sept 05: -150,000
Range: -80,000 to -300,000
Unemployment rate Consensus Forecast for Sept 05: 5.0 percent
Range: 4.9 to 5.3 percent
Average workweek Consensus Forecast for Sept 05: 33.6 hours
Range: 33.5 to 33.7 hours
Average hourly earnings Consensus Forecast for Sept 05: 0.2 percent
Range: 0.0 to 0.4 percent
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During the mature phase of an economic expansion, monthly payrolls gains of 150,000 or so are considered relatively healthy. In the early stages of recovery though, gains are expected to surpass 250,000 per month. |
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The civilian unemployment rate is a lagging indicator of economic activity. During a recession, many people leave the labor force entirely, so the jobless rate may not increase as much as expected. This means that the jobless rate may continue to increase in the early stages of recovery because more people are returning to the labor force as they believe they will be able to find work. The civilian unemployment rate tends towards greater stability than payroll employment on a monthly basis. It reveals the degree to which labor resources are utilized in the economy. |
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