Bottom line: The U.S. jobless rate unexpectedly fell in September, reaching the lowest level since January 2009. Importantly, the decline was not due to people dropping out of the labor force, as it was the case last month. In September the labor force increased driven by a significant rise in the number of employed persons. The September non-farm payrolls figure was rather modest and came in line with expectations, but adding to the positive picture was the upward revision of payrolls figures for August and July. The September strong labor market data are unlikely to be seen as the “substantial improvement” the Fed was looking for when it announced QE3 last month. Still, if the decline in the U.S. unemployment rate continues at this pace, which we see as rather unlikely, the total scale of purchases by the Fed might be less than expected.
• The U.S. unemployment rate fell to 7.8% in September from 8.1% in August vs. consensus at 8.2%. Importantly, the fall was not driven by people dropping out of the labor force, giving up on their job search, as was the case last month. In September the labor force increased by 418K compared to last month, as the number of employed persons rose by as much as 873K, whereas the number of unemployed decreased by 456K.
• U.S. non-farm payrolls rose by 114K in September, in line with consensus at 115K. The August change in nonfarm payrolls was revised upward: from 96K to 142K, so was the July figure: from 141K to 181K. As a result the two-month payrolls revision added 86K. In 2012 so far, employment growth averaged 146K per month, compared with an average monthly gain of 153K in 2011.
• Most of the U.S. employment increase in September was in services: health care and transportation, whereas manufacturing employment edged down.
• Fed launched QE3 last month, saying it would buy USD 40bn each month of mortgage-backed securities and could undertake additional purchases if the outlook for the labor market does not improve substantially. The September strong labor market figures are unlikely to be seen as the “substantial improvement” the Fed was looking for. Still, if the unemployment rate continues to decline at this pace (0.5pp within the last two months), the total scale of purchases by the Fed might be less than expected.