The Bureau of Labor Statistics (BLS) released their estimate of new job creations in the month of September. As we thought, the report showed lackluster growth in the labor market. Although the expected number was a meager 145,000, the actual number was 136,000. When you consider that the average gains in 2018 were 223,000, this puts perspective on where the labor market is now relative to where it has been. With the six-month average now down to just 154,000, we are seeing a slow transition that will eventually lead to a softer labor market where wages are pressured lower and job cuts become more common. In fact, Weekly Average Earnings growth rate fell from 2.9% down to 2.6%. This will help keep inflation levels low and is great news for mortgage interest rates going forward.
The part of the report that is computed by telephone survey calls across America is the Unemployment Rate, which just fell to the lowest levels since 1969. The headline report showed a drop from 3.7% down to 3.5%. Based on the phone survey, there were more jobs created than there were people who entered the labor market, which is why the Unemployment Rate fell.
Having the Unemployment Rate fall to match levels not seen since 1969 is a good thing on one hand and a bad omen on the other. In 100% of the past times that the Unemployment Rate hit a cycle low, it was immediately followed by a sharp move higher. Since 3.5% is the lowest we have seen in 50 years, we can’t assume it will fall much further (if any at all). I have had 3.5% as my low target for this cycle, which means that I believe a spike will follow.