This morning, the Bureau of Labor Statistics released its monthly employment situation report. On the surface, things look great. In September, a net 248,000 jobs were added in the U.S., and the unemployment rate declined to 5.9%. Year-over-year, there has been a net increase of 2.3 million jobs. These types of numbers make for great headlines and great talking points for politicians and Wall Street strategists. They may even provide renewed confidence (albeit false confidence) among bond-market bears, whose growls have fallen on deaf ears of late. But one thing these numbers do not do is tell the whole story.
As someone who holds a diverse portfolio of common and preferred stocks, corporate bonds, Treasuries, precious metals, commercial real estate, and private equity, I take great interest in looking beyond headlines and trying to remain a realist in a world full of hype. With that in mind, I would like to present some important details from the latest employment report-details that help to paint a more realistic picture of the state of the labor market.
1. I am of the view that underlying strength in an employment report requires solid job growth in the 25-to-54 year-old demographic. In September, 25-to-54 year olds saw a decline of 10,000 jobs on a seasonally-adjusted basis. Within what age group were the gains concentrated? Interestingly enough, the 55-and-over demographic saw an impressive 230,000 net gain in jobs. Overall, the decline in the 25-to-54 year old category makes the headline number much less impressive.
2. There was a gain of 289,000 jobs in "self-employed, unincorporated" workers. The gains in this category alone surpassed the entire headline gain of 248,000. While it's nice people are apparently finding ways to make money on their own, I wouldn't exactly call the self-employed, unincorporated group the most stable category of employment. Remember, these are people who haven't formed businesses but are nevertheless reporting that they make money on their own. I hope these people make at least the equivalent of a well-paying, full-time job. But we may never know.
3. Average hourly earnings for nonsupervisory employees remained flat in September, and average weekly earnings declined by 0.3%. The U.S. economy added jobs but earnings among those not in management positions declined. A truly strong employment report would show gains in earnings among employees that haven't made it to the ranks of management.
4. The labor force participation rate remained at a multi-decade low, ticking down to 62.7. For those who like to argue that the labor force participation rate is declining due to baby boomers retiring, let me direct your attention back to number one above. Additionally, it's also worth pointing out that the labor force participation rate among those 55-and-older has for years been trending up (especially among those 65-and-older). Moreover, it is currently projected to continue that uptrend over the coming years (see BLS data here).
While the headline jobs number was indeed noteworthy, it's important for investors to also monitor the things going on beneath the surface. The four reasons this job report stinks aren't enough to argue a collapse in employment is on the horizon. They are, however, enough for those who think the Fed will be raising interest rates in the near future to reconsider.
Disclosure: The author is long SPY.
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