September Jobs Report Needs an Asterisk

Hurricanes Irma and Harvey blew across the labor market, as employers shed 33,000 jobs in September. Yes, it was the first negative reading on payrolls in seven years, but until we have the subsequent few months’ reports, it’s hard to read too much into the results. (As a note, Puerto Rico is NOT included in the BLS report.) The Labor Department said that the storms likely contributed to “a sharp employment decline in food services and drinking places (-105K) and below-trend growth in some other industries.”

The same weather-related distortion could apply to wages, which were 2.9 percent higher from a year earlier. The reason is that many of those food services and drinking places employees were low-wage workers, who were temporarily unemployed because of the storms. Removing them from the total labor force likely pushed up the overall average during the survey period.

Meanwhile, the unemployment rate dropped to 4.2 percent, the lowest reading in 16 years (Feb 2001) and the slide was for a good reason: more workers found jobs even as the labor force expanded. While it’s probably best to put an asterisk after this report, Paul Ashworth at Capital Economics believes that “the drop in the unemployment rate might persist…to nearer 4 percent for some time.”

One place where there are plenty of open positions is the Federal Reserve Board of Governors. With last week’s Senate approval (65-32) of Randall Quarles as vice chairman for supervision, there will still be three of the seven chairs open at the world’s most important central bank, after Stanley Fischer steps down on October 15. The Trump administration has not nominated any candidates for those positions, perhaps because it is wrestling with whether or not to keep Janet Yellen as the Chair—her term ends in February.

[Quick wonky note about the Fed: Yellen became chair on February 3, 2014, for a four-year term ending February 3, 2018. But her 14-year term as a member of the Board began in October 2010 and will expire January 31, 2024. It is widely assumed that if Trump replaces her as chair, she will resign from the Board.]

Perhaps the President is resisting the re-appointment of Yellen because she is seen as a left-leaning academic, who is too rah-rah about tightening regulation for the systemically important financial institutions that the Fed oversees. But according to the editorial page of the Financial Times (not exactly a liberal publication), Yellen’s tenure has continued the approach with that of her predecessor, Ben Bernanke, whose “reaction to the crisis was among the best of the world’s central banks.”

Some of the names being floated as a replacement for Yellen include former Fed board (2006-2011) member Kevin Warsh, who has consistently been wrong about the threat of inflation; presidential adviser Gary Cohn, the former Goldman Sachs executive/commodities trader, whose fiery personality may preclude him from building consensus among the Board; and current board member Jerome Powell, who has advocated loosening rules for banks. The Financial Times sums up the horserace like this: “On the three most important counts-views on monetary policy, attitude to financial regulation and Fed independence-reappointing Ms. Yellen is by far the best solution.”