Slow Your Roll on September’s “Blowout” Jobs Report

“Wowza.” That is how one economist described the September jobs report, as nonfarm payrolls soared past expectations. The enthusiasm wasn’t isolated to a select few, either—most coverage cheered the “strong labor market.” While we don’t pooh-pooh September’s numbers, some perspective is in order. Positive or negative, in our view, labor data only confirm what stocks have long since moved on from.

September’s results featured plenty to like. Nonfarm payrolls surged 254,000, trouncing consensus estimates of 142,500.^[i] Meanwhile, the unemployment rate ticked down for a second-straight month to 4.1%.^[ii] The “underemployment” rate—which includes those working part-time for economic reasons as well as discouraged workers (those who haven’t sought work in over four weeks)—fell to 7.7% from August’s 7.9%, the first decline in nearly a year.^[iii] The solid report prompted the usual Fed speculation (e.g., Jerome Powell and friends face less pressure to cut rates now). But more interesting to us: the generally chipper reaction. One take even suggested now is the time to “concede that the economy is looking fabulous.”^[iv]

That optimism isn’t baseless, but put this “blowout” jobs report in perspective. One, September’s read isn’t even this year’s biggest monthly gain this year (that honor goes to March’s 310,000).^[v] Yes, September’s 254,000 gain exceeds 2024’s year-to-date monthly median of 216,000, but not hugely.^[vi] Looking over the past two years, the median monthly gain is 240,000—not far off last month’s result.^[vii] And are September’s results worthy of a “wowza” when compared to 2021’s 546,500 monthly gain amid the post-lockdown economy’s hiring spree?

Then there is the seasonal adjustment factor. Hiring fluctuates based on the time of the year (e.g., retail hiring picks during the winter holiday shopping season), so the Bureau of Labor Statistics applies seasonal factors to make the numbers more easily comparable month to month. However, things can get a little wonky in September since it is the transition point between summer and fall (teachers return to school, construction hiring tends to cool). But even by historical standards, this year’s seasonal factor was the largest for any September going back to 2002.^[viii] One reason may have been favorable weather, benefiting restaurants, construction and retail—the industries that drove September’s gains. But the establishment survey response rate was also the lowest for any September since 2002, further complicating the picture.^[ix] As more data come in, revisions may blow away the blowout initial estimate.

One other notable component to September’s report: Manufacturing employment fell by -7,000, one of two detracting sectors (the other being Transportation and warehousing).^[x] The dip extends manufacturing’s long-running soft patch. Over the past 12 months, the sector has shed a net -28,000—most among all major sectors.^[xi] Unsurprisingly, durable goods industries (e.g., transportation equipment manufacturing) is responsible for most of the decline. Yet this isn’t new news—labor data are simply confirming a trend other, less-lagging manufacturing data have shown over the past two years.

For all the chatter about what this means for the Fed, all this activity occurred before September’s rate cut—evidence against those arguing a rate cut is necessary to support further jobs growth. We also think this proves all that talk about July’s supposedly bad report indicating the Fed was behind the 8-Ball was just plain wrong. Remember the negative volatility at August’s onset? Headlines attributed some of that to the deceleration in July jobs growth—which supposedly meant a rising risk of recession (since the Fed would delay a rate cut). We wrote back then that it seemed like a chicken/egg thing—i.e., volatility was clouding everyone’s view. Stocks have since rebounded, quieting those recession predictions. Yet September’s solid report has many ratcheting down expectations of future rate cuts—which also strikes us as silly since central bankers’ actions aren’t predictable (despite how much attention their words receive).

Moreover, jobs are lagging economic indicators, simply confirming developments from months ago. So in the event that a September Fed rate cut influences a company’s decision—which we are skeptical of—that effect won’t show up in the data for some time. Looking ahead to the next jobs report, October’s results may reflect some noise tied to the three-day East and Gulf Coast port strike and disruptions tied to Hurricane Helene. Those singular events don’t say much about what businesses will do in November, let alone next year. For all the eyeballs jobs data grab, they reflect old news to stocks.