New Jobs Report Lands With 263,000 Added In September

In figures that have just been released by the Bureau of Labor Statistics, there were a total of 263,000 new non-farm jobs added in the month of September. This took the unemployment rate down slightly to 3.5% from 3.6% last month.

This sees the unemployment rate head back down to the same level as was experienced in July. This is the opposite direction to the Fed’s recent projections which had suggested that unemployment would creep up to an average of 3.8% for the duration of 2022.

While job growth is heading in the right direction, it has slowed from 2021. The average new jobs added each month was 562,000 last year, which has decreased down to an average of 420,000 so far in 2022.

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Breakdown of the new jobs added

Jobs in health care rose by 60,000 over the month and this interestingly takes the labor figures back to the level they were at the outset of the coronavirus pandemic back in February 2020.

Employment in professional and business services remained strong in September and added 46,000 new jobs. This continues a trend which has been the sector adding an average of 72,000 new payrolls each month so far this year.

Other major movers this month were temporary help services which created 27,000 new jobs for the month, manufacturing (22,000), construction (19,000) and wholesale trade (11,000).

It wasn’t smooth sailing across the board though, with multiple sectors contracting throughout the month. Financial activities reduced headcount by 8,000 jobs, transportation and warehousing lost 8,000 jobs in the month of September.

Wages aren’t rising to the same level as inflation

A common narrative over the past 12 months has been one of a tight labor market, but with workers still feeling the pinch of rising prices. This narrative is playing out in the data with job numbers remaining strong but wages failing to rise at the same level as inflation.

The story continues this month with the average hourly earnings for all non-farm private employees increasing by 10 cents to $32.45 per hour. This represents an increase of 5.0% over the past 12 months, which is significantly lower than the rate of inflation over that period which currently stands at 8.3%.

So even though workers are receiving pay rises that would be considered reasonable, or even generous, in a normal year, they are still falling short of what workers need to maintain their current standard of living.

The average working week remained unchanged for the fourth month in a row, staying steady at 34.5 hours. There is some sizable variation between industries in this figure. For example, the average work week in the manufacturing sector stands at 40.3 hours.

What the jobs report means for investors

Last month Fed chairman Jerome Powell made some big statements on the projected future of the economy and the Feds plans. Their main objective is to reign in the high rates of inflation and they plan to do this with consistent and significant increases to interest rates.

This is expected to put a major dampener on economic growth, which is likely to create a fairly negative outlook for investors.

If the projections are correct.

The Feds expectation is for unemployment to rise to an average of 3.8% for 2022, before increasing further to 4.4% into next year. Obviously if this was to be the case it would signal a slowdown in the economy which would be likely to mean continued volatility in the stock market.

But if the economy manages to maintain a ‘soft landing’ we may see an outcome that is less severe and therefore triggers less volatility in the markets. While the figures from this week’s jobs report are in line with analyst expectations, they show that we aren’t yet seeing the transition into a higher unemployment environment.

That doesn’ take away from the fact that it is a challenging time for investors. Over the past two years we’ve seen incredibly strong growth in the US markets which has made it easy for investors to generate significant profits. Times are tougher now, but it’s not to say there aren’t plenty of opportunities available for investors who know where to look.

Because there are.

When economic growth is low or negative, large cap stocks are often a good place to be. Big companies generally have diversified income streams, additional cash on hand, a more stable customer base and greater flexibility to ride out a difficult stretch.

Small and mid-sized companies don’t often have the same luxury. They are often running on slimmer margins with lower profits, have a less diversified business model and require more growth to keep their cash flow headed in the right direction.

Because of this, large caps can outperform small and mid caps in low or no growth environments. You could just take a long position in large caps to take advantage of this, but that could still be underwhelming if the overall economic backdrop means markets trend sideways or downwards.

That’s why we created the Large Cap Kit. This is a sophisticated pair trade approach which takes a long position in large cap US stocks, while at the same time takes a short position in small and medium sized companies.

This means that investors can profit off the relative change between large caps and small/mid caps. So even if the market as a whole goes down or sideways, investors can generate returns if large companies outperform smaller ones.

This is the type of sophisticated trade you can usually only gain access to if you’re a rich investment banking client, but we make it available to everyone.

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