On Friday we received the latest snapshot from the US labor market which send equity markets as well as the US Dollar rallying as the two most important headline figures, the job number and the unemployment rate, came in better than expected as was the case with almost every NFO report in 2014 with the exception in August where the headline jobs number came in below consensus. Expectations for September were little impacted by the dismal jobs report from August.
The September NFP report was much better than expected and the best news may have been the upward revision to August’s figure which now stands at 180,000 jobs created. Economists expected an increase of 215,000 jobs for September, but the actual report came in at 248,000 jobs. The US Dollar rallied and adding to the bullish momentum was the drop in the unemployment rate to 5.9% against expectations for an unchanged reading at 6.1%.
Traders cheered the report and shrugged it off as a great success and healthy labor market. Once you take the time to look deeper into the details of the September NFP report you can notice three alarming facts about the health of the US labor market which will eventually show up in consumer spending and GDP reports. The labor market is much weaker than the headline figures suggest and the three components which should really worry traders are: average hourly earnings, average workweek and labor force participation rate.
Average hourly earnings were flat in September as compares to August while annualized hourly earnings rose only 2.0%. This takes spending power away from those who do have a job and are employed. The average workweek rose 34.6 hours per week. This means not only do employees not get paid more, but they have to work more for the same salary. An increase in the average workweek suggests that employers find way to squeeze more labor from existing employees and that they have no intention to hire more.
The ongoing decrease in the labor force participation rate which contracted another 0.1% to 62.7% is another great concern. This means less and less Americans and American households are employed as the population continues to swell. The troubles the US economy is facing are not reflected in the NFP report’s headline figures, but looking at the three crisis indicators mentioned above all lights are flashing red with the sirens blasting for traders to leave the premises. The US Dollar is likely to have an ugly awakening rather soon.