Was The Unemployment Numbers As Ugly As The Headlines Suggested?

By: Kent Engelke | Capitol Securities

The headline numbers of September’s jobs report were disappointing. Non-farm payrolls contracted for the first time in seven years, albeit August’s data was revised higher. The unemployment rate however fell to the lowest level since February 2001.

At the risk of becoming too technical, non-farm payrolls are determined by calling 140,000 plus businesses employing over 400 workers and asking whether or not they are hiring.

The unemployment rate is determined by calling approximately 60,000 households asking whether or not they have a job.

The labor participation rate (LPR) is an overlooked data point that I think is of great significance. This measures the percentage of people who have a job or are actively looking for a job. If the person exits the work force, that person does not count.

September’s LPR rose to 63.2%, the highest level since August 2013’s 63.3% level. Analysts thought the LPR would remain flat at 62.9%. If the LPR stood around 2009’s level of about 65.7% when the great recession ended, the unemployment rate would be around 8.5%, or about double today’s 4.2% rate.

It was summer 2013 when Dodd Frank started to be implemented. Full implementation was September 2014. The LPR began its decent in August 2013, bottoming two years later in September 2015 at 62.4%. It remained mired around this level until January 2017.

Capital formation is the life blood of capitalism and job creation. Without such, growth will be anemic. Dodd Frank restricts capital formation and job creation. I think there is a direct correlation between the LPR, Dodd Frank and wealth/job creation.

The great job generation era of 1996-1997 was where 90% of jobs were created by small businesses that are defined as companies employing less than 499 people. The LPR was consistently around 67% during this era. Dodd Frank is a major reason why small business creation has been stifled.

In June 2017, Dodd Frank was repealed in the House. Reiterating, I think this repeal is directly related to a rising LPR and 3.0% economic growth.

And then there are rising wages. Wages in September rose at a pace considerably faster than expected. Some are blaming the distorting effects of the hurricanes. Only history will state whether or not this is an accurate conclusion.

This week is the commencement of earning season. How will the early results be interpreted?

The economic calendar is comprised of the Fed Minutes from the September FOMC meeting, various inflation indices, retail sales and sentiment surveys. What will this data suggest?

Last night the foreign markets were quiet. London was down 0.24%, Paris was down 0.01% and Frankfurt was up 0.03%. China was up 0.76%, Japan was up 0.30% and Hang Sang was down 0.46%.

The Dow should open quietly. The bond market is closed today for Columbus Day.

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