Another strong report, showing no cause for concern and fully consistent with our expectation that the FOMC will raise rates once per quarter through September 2019. Payrolls increased a lower-than-expected 134K in September, but upward revisions to July and August totaled nearly 90K. On balance, the recent trend in payrolls looks slightly stronger. BLS reported that—despite Hurricane Florence disrupting during the survey period—response rates for both the household and establishment surveys were within normal ranges. While perhaps small, any impact would have been negative, so this report likely understates the strength of the labor market.
The unemployment rate declined two tenths, to 3.7%, and the participation rate remained at 62.7%. In our last forecast, we had the unemployment rate averaging 3.7% in Q4, as did the FOMC median. The decline in September was slightly greater than we had anticipated, pointing to some downward risk to those projections, but doesn’t warrant any meaningful reconsideration of the projected path of the unemployment rate over the next year or so.
Average hourly earnings posted a solid gain of 0.3%, and the 12-month change ticked down to 2.8%. Here the story remains what we’ve been saying for some time: Wages have picked up over the last year or so as the labor market has tightened, and they continue to gradually firm. But there’s no sign of excessive overheating.