September's jobs creation comes up short with gain of just 194,000

The Labor Department reported Friday that nonfarm payrolls increased by only 194,000 in the month compared to the Dow Jones estimate, which was 500,000. The unemployment rate was 4.8%, which is lower than the 5.1% expectation and the lowest level since February 2020.
Although the U.S. economy created more jobs in September than expected, it was significantly hampered by a sharp decline in government employment.

Markets did not react to the news. Dow futures were flat in the morning, while government bond yields were mixed as investors digested the report.

Nick Bunker, Indeed's economic research director, said that "this is quite a deflating" report. "This year was one of false dawns in the labor market. While there is a strong demand for workers and millions of people are eager to go back to work, employment growth is still slowing.

As the labor force participation rate dipped, the unemployment rate fell. This means that more people who were unable to work due to the coronavirus pandemic are now working again. The 8.5% figure, which also includes discouraged workers or those who hold part-time jobs due to economic reasons, is a lower number than the previous pandemic.

The headline number was affected by a 123,000 decrease in government payrolls, while private payrolls increased 317,000.

Wages rose sharply despite the low number of jobs. Year-over-year, the increase in wages to 4.6% was driven by 0.6% monthly gains. This is because companies employ wage increases to address the labor shortage. In September, the available workforce fell by 183,000 and is now 3.1 million below where it was in February 2020 just before the pandemic.

Andrew Hunter, senior U.S. economist with Capital Economics, stated that "labor shortages continue to put severe upward pressure upon wages... at an time when the return low-wage leisure workers should be depressing average,"

The sector saw 74,000 new jobs created by leisure and hospitality, while the unemployment rate dropped to 7.7% from 9.1%. Retail increased by 56,000, while professional and business services contributed 60,000.

There were many other sectors that saw job gains: transportation and warehousing (47,000), information (32,000), and social assistance (30,000.), manufacturing (26,000), construction (22,000), and wholesale trade (17,000).

According to Gus Faucher (chief economist at PNC), the local government education jobs declined by 144,000. This could have been due seasonal adjustments in numbers.

The Sept. 12 survey week coincided with the peak in Covid cases in the U.S. Since then, the spread of the delta variant has slowed down with most cases falling below 100,000 per day.

Black unemployment fell to 7.9%, from 8.8%. This was largely due to a drop in 66% labor force participation rate from 66.7% for males.

Some good news was found in Friday's report compared to previous months.

July's already strong gains were up 38,000 to 1.0913million, while August's huge letdown was also revised up to 366,000, from 235,000 initially reported.

The employment-to-population level increased to 58.7%, its highest since March 2020.

This report comes at an important time for the economy. Recent data shows solid consumer spending, despite rising prices, growth within the manufacturing and service sector, and surging housing cost.

Federal Reserve officials closely monitor the employment numbers. Recently, the central bank indicated that it is ready to reduce the assistance it provided during the pandemic crisis. This was mainly because inflation has exceeded the Fed's 2 percent goal.

Officials have stated that they believe the job market is still far from full employment, which is a requirement for interest rate increases. According to market pricing, the first rate rise is likely to occur in November 2022.

"After appearing almost done, today's jobs numbers have thrown into doubt expectations about tapering. Although the Fed doesn't need much convincing to start tapering immediately, the Fed is not likely to need to see jobs numbers at 194,000. These numbers suggest that the labor market may be further away from reaching the substantial progress goal. Seema Shah, principal strategist at Principal Global Investors, said that this was a surprise.