The US unemployment rate dropped to 7.8% (from 8.1%), marking the lowest level in over 3.5 years; the broader underutilization rate remained flat at 14.7%.
• A net +114k jobs were created in September, in line with consensus estimates of +118k; even better, July and August payrolls were revised upward by +86k.
• The total number of unemployed (12.1M) decreased by -456k while the long-term unemployed - those out of work for 6+ months held steady at 40.1% (4.8M).
• Unlike previous dips in the unemployment rate that were attributable to more Americans leaving the workforce, this one could be construed as the result of true job growth as the civilian labor force actually grew by 418k. Quite perplexing, however, is how the rate could drop this much in spite of the underutilization rate holding steady…one of the unfortunate drawbacks of using two different data sources (establishment (payrolls) and household surveys) to calculate the overall rate.
Services continuing to pick up the slack...
• Among the big gainers: health care (+44k; +295k yoy increase), transportation and warehousing (+17.1k), food and drinking places (+15.7k), financial activities (+13k) and professional and business services (+13k).
• These gains offset the continued drop in manufacturing (-13k; -38k over the last two months).
• The public sector was a job creator in September (+10k), with gains seen at the Federal and State (education) levels.
What’s in store? Key watch items…
On the bearish side:
• Global Head Cold. The popular adage "when the US sneezes, the world catches a cold" spoke to our profound impact on the global economy. The persistent global malaise means we no longer lay claim to this distinction alone. The ongoing Euro debt crisis coupled with China's cooling economy is perpetuating a vicious circle which, according to the World Trade Organization, will limit global trade expansion to 2.5% in 2012 (vs. 14% growth in 2010 and 6% average growth over the last two decades) and quell the US' export engine which accounted for nearly half of our growth during the recovery. Coincidentally, the International Monetary Fund forecasts 2012 global economic growth to be 3%.
On the bullish side:
• Housing. It appears that one of the final legs of the "economic growth stool" may have finally found its footing. Record low interest rates are driving mortgage application and refinancing spikes, not to mention home price appreciation. With less money being spent on mortgages (which represented 33.8% of each households average spending in 2011), consumers have more money to spend on other things…like beer (Note: US beer shipments rose 1.9% YTD after falling for three straight years). However, we must remain wary of a couple factors that will continue to suppress the housing recovery: Fannie/Freddie Mac's "putbacks" (forcing banks to take back sub-prime mortgages) and Dodd-Frank legislation (requiring banks to rigorously document borrowers' ability to pay).
On the neither bearish/bullish side (sorry…I'm trying to remain like Switzerland on this one):
• Presidential Election. The unemployment rate drop to below the symbolic 8.0% threshold deprives the Republican Party of a critical argument for regime change, five weeks before the November election. Could this be the 2012 game changer? If so, US businesses and citizens alike will need to consider the certainties of President Obama's platform: Obamacare, tax legislation, business regulation, etc.
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