Private Hiring Pace Is Worst In 3 Years; Labor Force Shrinks

U.S. private-sector job growth downshifted to the slowest pace in more than three years as the labor force participation rate sank to a 38-year low, the Labor Department reported Friday.

The unexpectedly soft job growth and flat wages in September lowered the odds that the Federal Reserve will begin raising interest rates in December.

Stock indexes opened sharply lower on concerns that global weakness is hurting the U.S. more than was thought, but the prospect of a more patient Fed seemed to raise spirits. The S&P 500 turned a 1.6% drop into a 1.4% gain. The 10-year Treasury yield still settled at 1.99%, the lowest close since April.

The private sector added 118,000 jobs in September after August's downwardly revised 100,000 rise, the worst two months since the spring of 2012. Private hiring averaged 205,000 over the first seven months of the year and 254,000 in 2014.

Government added 24,000 jobs in September, lifting total payrolls by 142,000, well below the 206,000 expected.

The jobless rate held at 5.1%, the lowest since 2008, but only because 350,000 people stopped looking for work, pushing labor force participation to 62.4%, the lowest since October 1977.

IHS Global Insight Chief Economist Nariman Behravesh blamed the tepid job growth on "weakness outside the U.S. hitting exports and volatility in the stock market," which led firms to slow hiring and capital spending. He thinks slower hiring may persist for a few months but sees "slightly better than 50/50 odds" of a December hike, as long as the next couple of job reports aren't quite as bad as Friday's.

Barely more than half of all private industries — 52.9% — added staff, the weakest report since February 2010, noted John Silvia, chief economist at Wells Fargo Securities.

"Job losses in the mining and manufacturing industries reflect the effects of continued weakness in commodity prices and sagging global demand," he wrote.

The goods-producing sector of the economy shed 13,000 jobs as job losses in mining (10,300) and manufacturing (9,000) helped offset 8,000 new construction jobs. Losses also came in wholesale trade (4,100), truck transportation (4,000), commercial banking (2,300) and utilities (700).

Job gains came in business services (31,000), retail (23,700), health care (34,400) and leisure and hospitality (35,000).

The gains tilted to lower-paying industries instead of higher- paying export-related fields, helping to explain why average hourly earnings fell 1 cent to $25.09.

With the average workweek falling to 34.6 hours, weekly pay climbed just 1.9% vs. a year earlier, down from 2.9% in February.

The continued lack of wage pressures has let the Fed hold off on raising rates even as the jobless rate has fallen to a level traditionally seen as being close to full employment.

"The real barometer is wages," Behravesh said, which are signaling continued substantial slack in the labor market.

An aging population only partly explains the drop in labor force participation. Back in 2007, 79% of prime-age workers 25 to 54 were employed. If that were still the case, an additional 2.25 million would be working today.