The unemployment rate fell mostly because of a decline in the size of the labor force.
The United States added 194,000 jobs on the month, the Labor Department reported Friday, far below economists’ consensus estimates of 500,000 and below RSM’s estimate of 375,000. The miss will certainly cause some to urge the Federal Reserve to reconsider what is expected to be the start of its tapering operations later this year. But we do not see this report altering that start date. In September, the U.S. jobs recovery from the pandemic continued to advance, albeit at a slower pace compared to August’s increase of 366,000 jobs, which was upwardly revised from the original estimate of 235,000. The unemployment rate fell to 4.8%, mostly because of a decline in the size of the labor force—a drop of 432,000 in the household survey. Average hourly wages increased by 0.6% on the month and were up by 4.6% on a year-ago basis. Involuntary part-time employment remained essentially unchanged at 4.4 million in contrast with the long-term average of 5.4 million. While wages continue to reflect the labor shortages in the economy, the three-month average annualized pace of wage gains slowed to 5.1% from 5.4% in August. That easing should provide some comfort at the Fed, where officials are surely hearing from firms about wage inflation. Nevertheless, aggregate hours worked increased by 0.8% on the month, which is surely a function of firms trying to increase output as supply constraints limit their ability to meet underlying demand. Those added hours should augment household income and spending going forward.