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Economic Watch: Employment Strong Despite Slip, Factory Activity Jumps

October 6, 2017

By Evan Lockridge

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The nation’s unemployment rate dipped in September, while overall and trucking employment changed little, as factory orders, including those for core capital goods, rose in August.

The number of job non-farm job losses totaled 33,000 for the month, according to the Labor Department. It's the first negative performance since September 2010 and less than the gain of 80,000 jobs expected by a consensus estimate from economists.

The August total of job gains was revised slightly higher and July was moved lower. Overall job gains this year are at their slowest pace in at least five years, according to CNBC.com.

“A sharp employment decline in food services and drinking places and below-trend growth in some other industries likely reflected the impact of Hurricanes Irma and Harvey,” said the report.

The department said data acknowledged that hurricanes Irma and Harvey, had a clear downward impact on the job count, though was not able to provide a precise estimate of the hit. However, it did point out that the food services component sank by 105,000 jobs in September compared to a trend gain of 24,000 over the prior 12 months. It noted that this sector is particularly vulnerable to weather-related disturbances as “a large majority of [these] workers are not paid when they are absent from work.”

This suggests that this single component likely biased down September payrolls by almost 130,000  and indicative that underlying payroll gains remain solidly positive in the month, according to Paul Ferley, assistant chief economist at RBC Economic Research.

“Underlying strength in September labor markets was also conveyed by the unemployment rate dropping more than expected to 4.2% from 4.4% in August,” he said. “The unemployment rate is based on the separate household survey where individuals unable to get to work due to adverse weather are still counted as employed.”

Meantime, in trucking there are estimated to have been just 100 job losses during September, while the wider transportation and warehousing sector added a whopping 21,800 jobs. This is due to gains in the transit and ground passenger transportation category as well as in the air transportation, couriers and messengers and warehousing and storage sectors.

The government report follows one from two days earlier in which payroll processor ADP said 135,000 non-farm, private sector jobs were added in September, which is down from a revised August reading of 228,000 job gains.

“In September, small businesses experienced a dip in hiring,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “This is in part due to Hurricanes Harvey and Irma, which significantly impacted smaller retailers.  In addition, the continued slowdown we have seen in small business hiring could be due to a lack of competitive compensation to attract skilled talent.”

Mark Zandi, chief economist of Moody’s Analytics, said, “Hurricanes Harvey and Irma hurt the job market in September. Looking through the storms the job market remains sturdy and strong.”

Looking ahead, Ferley said the overall pace of employment activity will likely be abetted by the repair and rebuilding work that will ensue in the wake of the damage to from both hurricanes.

"With the 4.2% unemployment rate reported today indicative of labor markets operating at capacity, the Federal Reserve will likely see the need to continue to tighten policy,” he said. “Thus today’s report reinforces our view that the fed funds range will be hiked 25 basis points (.25%) in December with four similar-sized increases through 2018.”

Orders for Capital Goods Surge

Both reports follow one from Wednesday showing gains for the nation’s factory sector, with new orders for factory made goods increasing by 1.2% in August, better than analysts were expecting, while reversing some of July’s 3.3% drop. Shipments of factory-made goods improved 0.5%.

The department also revised an earlier estimate of orders for nondefense capital goods minus aircraft, a sign of business investment, to show a 1.1% jump in August, up from a first reported 0.9% hike. This follows a 1.3% improvement in July.

The increase in orders for nondefense capital goods minus aircraft “is consistent with our outlook for equipment spending to continue on at a healthy pace through the rest of the year,” said analysts at Wells Fargo Securities.

They also noted that factory inventories rose for a third straight month during August and point to total inventories boosting topline gross domestic product growth in the third quarter of the year. A government report on the third quarter GDP performance is not due out until late October.

Wells Fargo said the overall gain in factory orders “is consistent with other manufacturing data that suggest the industry is expanding at a healthy clip.”

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