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‘Massively concerning’ jobs report sends a signal that the economic recovery could be fading

https://www.cnbc.com/2020/10/02/massively-concerning-jobs-report-sends-a-signal-that-the-economic-recovery-could-be-fading.html

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Weaker-than-expected job growth in September sent a signal that the sharp economic recovery off the coronavirus shutdown may be hitting a wall.

The Labor Department reported Friday that nonfarm payrolls increased by 661,000 in September, held back by declines in government employment and an exodus of workers from the labor force.

In normal times, that type of hiring pace would be considered a sign of a robust job market. The total, in fact, would have been the best month the U.S. had seen since 1983 – if these were normal times and not amid the Covid-19 era that has changed the benchmarks by which economic data is measured.

As it stood, the total was a fairly wide miss from Wall Street’s expectation of 800,000. The unemployment rate fell more than expected to 7.9%, but that was mostly due to a sharp decline in labor force participation.

Taken together, the report is a potential early flare from the business community that a rebound during which 11 million jobs were refilled in four months could be petering out.

“This report is an illusion of progress at a time when we needed accelerating gains in the labor market. The number of jobs added this month is just not enough,” said Nick Bunker, economic research director at job placement site Indeed. “This report is massively concerning. We are not where we need to be, nor are we moving fast enough in the right direction as we head into fall.”
Data has looked good, but ...

The timing of the report is inauspicious in that most of the backward-looking economic indicators have been solid.

Housing stands out the most as the residential market is struggling to find supply to meet all the demand. Retail sales have been solid, and manufacturing is back into expansion after heading in the wrong direction for a few months.

The Citi Economic Surprise Index, which measures the data versus Wall Street expectations, has cooled since soaring to its historic peak in mid-July but still is above anything before the pandemic.

Most tellingly, consumer confidence remains strong. But that may not last, particularly if the jobs numbers weaken and the stock market continues to struggle.

“The real question in my mind is why consumers are so upbeat and why they remain upbeat. Until I can answer that, I don’t know how persistent the expansion is going to be,” said Drew Matus, chief market strategist at MetLife Investment Management. “People are underestimating how long the impact of what we’ve been through is going to last. In that regard, there’s some downside risk to the outlook.”

At the moment, the economy remains mostly in a rally mode off the unprecedented slump in the second quarter brought on by the coronavirus-induced shutdown. GDP is projected to increase by as much as a 32% annualized pace in the second quarter after tumbling 31.4% in Q2 and 5% to start the year.