Key takeaways for investors as unemployment drops below 6%

The equity markets are welcoming a stronger than expected set of employment numbers this morning. The unemployment rate finally fell below 6% for the first time since 2008, and the Dow Jones Industrial Average is up more than 200 points at last check.

Employment reports are always important but this September report carried an interesting element in that it follows an unexpectedly weak August report.

For those that expected September to produce a rebound, they largely got their wish.

September non-farm payrolls grew by 248k that exceeded expectations for 215k growth in jobs.  Adding to the positive development were revisions in August (142k to 180k) and July (212k to 243k) job growth. September’s unemployment rate showed a nice decline from 6.1% to 5.9% (6.1% was expected) as did an unemployment rate that includes discouraged and underemployed workers that slipped from 12.0% to 11.8%.

The unemployment rate numbers, however, remain subject to the number of workers entering or leaving the workforce.  With a 97K decline of participating workers in September, the mentioned unemployment rates do not look quite as robust.  Furthermore, the labor force participation rate at 62.7% is the lowest since February, 1978.  The languishing labor force participation rate is getting more attention to see if what factors are keeping it so low.  Age, lack of attractive jobs, unemployment benefits, and cyclical factors are items the Fed is looking at.

As for job growth, healthy increases were experienced in professional and business services, retail, healthcare and construction.  Manufacturing showed only a minor increase.  Average workweek hours, a potential leading indicator, ticked higher from 34.5 hours to 34.6.

As job growth appears to be on a modestly steady growth trend, wages remain stagnant.  September hourly earnings fell from $24.54 to $24.53 with a year-over-year increase of only 2%,  This has the Fed concerned and of the general opinion that slack remains in the labor force.  Because of this, it remains reasonable to believe that an eventual increase in short-term interest rates will not occur prior to expectations for the middle of 2015.  Like the tapering that is scheduled to end this month, I think we can look forward to a continued Federal Reserve “marketing” program to develop market expectations so that rate increases come as no surprise.

I don’t believe enough has been said on how development of energy reserves in this country has contributed to strength in the economy and stock market.  Without such energy reserves within the troubled world we live in, things certainly would be different.

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