September payroll report just right for the Fed

Boston  - Federal Reserve Vice Chairman Stanley Fischer said Friday's payroll report was "pretty close to a Goldilocks" number. Although the headline payroll gains for September were slightly below estimates, with the U.S. economy adding 156k jobs, the details of the report were fairly encouraging and show the U.S. labor market is still on the right track.

Private payrolls actually increased to 167k job gains in September, up from 144k the previous month, with the government sector contracting on a seasonally adjusted basis by 11k in September.

September is a month with very large seasonal adjustments due to many teachers returning to work, and these adjustments can have a substantial impact on the aggregate headline number. To give an idea just how large these seasonal adjustments are, on a non-seasonally adjust basis, local and state government payrolls actually increased by over 1 million jobs, but after seasonal adjustments there was a 10k loss in jobs. This is why it is important to not place too much weight on any one payroll report, as seasonal adjustments can wreak havoc.

Getting to the details of the report:

• The household employment survey was very strong, showing 354k jobs were added in September. The household employment survey is volatile, but has averaged 227k job gains per month so far this year, well above the establishment payroll survey, which has averaged 178k job gains per month. Both surveys show a U.S. labor market which continues to have slack removed, which should continue to put upward pressure on wages.
• Although the unemployment rate ticked up from 4.9% to 5.0%, it was once again for the right reason as the labor force grew by 444k and the participation rate ticked up to 62.9%. Unrounded, the unemployment rate only moved up from 4.922% to 4.965%.
• Average hourly earnings grew 0.2% month over month, and ticked back up to 2.6% year over year. While not quite the 3% the Fed may be looking for, we are getting closer once again.
• After a dip last month, the average length of the workweek also ticked back up to 34.4 hours from 34.3 hours.
• For the first time in a long time, the healthcare sector was not the main driver of job growth, although it did add an impressive 33k jobs. This month the award of most job additions goes to the accommodation and food services sector, which added 35k jobs. Also of note is the construction sector which added 23k jobs in September, after a 5k loss the previous month. Anyone who doesn't think the construction sector is strong should go to Dallas, as I was there earlier this week and I lost count of all the cranes and new condos I saw.

Bottom line:  The September payroll report was fairly solid across the board and keeps the Fed on track to hike in December for the second consecutive year. The doves at the Fed will be comforted by the fact the report wasn't so strong that it forces the Fed to hike in November.