OPINION

September Jobs Report: Unexpected Weakness

James Sherk • October 2, 2015

The Bureau of Labor Statistics’ September jobs report showed unexpected weakness in the labor market.

The payroll survey showed that employers created only 142,000 jobs in September. The economy created only 167,000 net new jobs a month in the 3rd quarter—a substantial drop from the 231,000 jobs a month pace in the 2nd quarter.

The numbers are even worse for private-sector job growth. Large expansions in government hiring boosted the August and September figures. Private-sector job growth dropped from 220,000 net new jobs a month in the 2nd quarter to 138,000 in the 3rd quarter.

The payroll survey also found average hourly wages dropping by 1 cent and average weekly hours falling by 0.1 hours a week. Both changes are consistent with—but do not necessarily demonstrate—reduced employer demand for labor.

The Household survey reported that the unemployment rate remained constant at 5.1 percent in September. Unfortunately, this happened only because almost 600,000 Americans left the labor force. People not looking for work do not count as unemployed, so the unemployment rate remained unchanged.

However, the labor force participation rate dropped another 0.2 percentage points to 62.4 percent—its lowest level since 1977.

Economists projected that labor force participation would fall as the Baby Boom generation approached retirement age. But the September drop in labor force participation extends to working-age Americans. Labor force participation for 25- to 54-year-olds dropped 0.1 percentage points last month. America has not had a lower “prime age” participation rate since 1984—a time when far fewer mothers held formal jobs.

These mediocre numbers could reflect nothing more than statistical noise. The payroll survey has a margin of error of plus or minus 100,000 jobs. The household survey has a margin of error of 400,000 jobs. What looks like a disappointing initial jobs report often turns out to be no more than a statistical blip.

Nonetheless, the September report follows a disappointing August report. Revisions also showed that employers created 60,000 fewer jobs in July and August than previously estimated. The recent GDP report also had disturbing news. Gross Domestic Product expanded at a 3.7-percent annual rate in the second quarter. Gross Domestic Income grew just 0.7 percent. Historically, Gross Domestic Income is a more reliable initial read on the state of the economy—the early GDP numbers tend to get revised toward GDI. This suggests that the economy is growing more slowly than the widely reported GDP numbers suggest.

It is too early to forecast another recession. But the employment report is another data point suggesting that the labor market is not doing as well as previously believed.

James Sherk | Contributor

As a research fellow in labor economics at The Heritage Foundation, James Sherk researches ways to promote competition and mobility in the workforce rather than erect barriers that prevent workers from getting ahead. Read his research.

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