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Florence Distorts Job Numbers; Labor Market Remains Strong

By: MST Banking

Tom teachingGuest blog by Dr. Tom Cunningham, Economist and MST Advisory Services, Senior Advisor- Economics

The headline numbers from the Bureau of Labor Statistics’ (BLS) September jobs report suggest a mixed employment situation. New jobs came in at just 134,000, well below the expected 180,000, while that headline unemployment rate, U3, fell 0.2 percentage points to 3.7 percent, slightly lower than the 3.8 percent expected. 

But there is more here than meets the eye. The relatively weak gains were distorted by hurricane Florence, which made landfall during the week the survey was conducted and negatively impacted employment in some regions and sectors. In its report, the BLS notes this, explaining that it is unable, however, to determine the precise impact of Florence on the job numbers. As well, the two previous months’ numbers were revised upward, and average hourly earnings are growing at a rate of 2.8 percent year over year. Looking beyond the headline number, it appears that the fundamental strength in the labor market persists. Business and Professional services and Healthcare continued to show strength among employment sectors. 

The broader measure of labor underutilization, U6, ticked up 0.1 to 7.5 percent unemployment. Most of the increase was due to a surge in one of the categories measured by U6, the number of people employed part time for “economic reasons,” that is, people who would rather be working a full-time job.

Overall labor market fundamentals remain strong, absent the distortions caused by Hurricane Florence.


About the Author

Tom Cunningham holds a Ph.D. in economics from Columbia University and was senior economist with the Federal Reserve Bank of Atlanta from 1985 to 2015. Mr. Cunningham serves as a consultant to MST in the creation and ongoing development of the MST Virtual Economist and is the MST Advisory economics specialist

Why should lenders consider the monthly jobs report?

As employment is a key factor in projecting loan portfolio performance, current employment statistics and longer term trends are likely to be primary considerations for most banks and credit unions as they incorporate forward-looking economic factors in their ALLL estimations under the CECL accounting standard. 

How can lenders consider economic factors in estimating their reserves?

Under the new accounting standard, CECL, financial institutions will be required to consider economic factors in estimating their reserves. The MST Virtual Economist is an efficient, automated way to evaluate qualitative economic factors and project their impact on the institution’s loss rate, find new variables that impact the loss rate and determine the relevance of the economic factors you are already using to make qualitative adjustments. Click here for more information or to schedule a demonstration.

About the Author

MST Banking

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