CAPITOL REPORT Mixed jobs report has something for everyone Massive upward revision offsets weakness in September payrolls By Rex Nutting, MarketWatch Last Update: 11:01 AM ET Oct 6, 2006 WASHINGTON (MarketWatch) -- Once again, the details of the monthly employment report are so mixed that almost any conclusion could be justified. That could explain the wild reaction in the financial markets on Friday. Bond markets sold off, figuring the report showed the economy wasn't about to collapse. But the stock market eased back as well, judging that the report indicated a slippage in growth. See Market Snapshot. Is the economy weakening? Sure, if you look at the deceleration in payroll growth to 51,000, the slowest pace in nearly a year. "If all you saw was the headline jobs number, you would think the economy is not only slowing but maybe even faltering," said Joel Naroff, president of Naroff Economic Advisers. In addition, hours worked fell, and the proportion of industries that are hiring fell back, the payroll survey said. See full story on the payrolls report. Does the economy have underappreciated strengths? Sure, if you look at the decline in the unemployment rate to a cyclical low of 4.6%, based on a separate survey of households showing a 271,000 gain in employment. Payroll growth in July and August was revised higher by a total of 62,000, meaning that total employment in September of 135.61 million was close to expectations. Average hourly earnings climbed to a five-year high, keeping inflation fears fueled. In addition, the government has found that 810,000 more people were working in March than it thought, a massive upward benchmark revision that goes a long way toward explaining why consumer spending held up so well in the face of a slumping housing sector and high energy prices. The benchmark revision will be incorporated into the official payrolls report in February. "Now it turns out that the jobs were there all along, which raises the possibility that current employment growth is also being similarly undercounted," said Michael Gregory, an economist for BMO Nesbitt Burns. Housing slowdown But the revisions are history. What matters most now is how strong the job market will be going forward. The September report is discouraging. Details show that the U.S. housing slowdown is beginning to weigh on the job market. The number of workers employed in residential construction dropped by 13,000 in September, while the total hours worked in construction fell by 1.7%. Employment in specialty construction trades, such as plumbing and electrical, plunged by 17,500. Real-estate employment was flat and has been unchanged since April. Softer hiring and fewer hours worked were also seen in related industries, such as manufacturing of wood products, mineral products and furniture, which lost 12,000 jobs combined, the government said. Housing-related employment fell by 25,000 in September after adding an average of 14,000 jobs a month over the past two years. However, total employment in construction rose by 8,000 as nonresidential builders added to their payrolls. Widespread softening Most other sectors in the economy slowed the pace of hiring in September. Retail and manufacturing employment fell. The number of jobs in the retail sector has fallen by 103,000 since December. Temporary-help jobs, a harbinger of future hiring, fell by 11,000. The total number of hours worked in the economy fell by 0.1% in September, including a 1% drop in hours worked in durable-goods manufacturing. The drop in hours worked is equivalent to losing full-time 136,000 jobs. Of 278 industries, 51.4% were hiring in September, the slowest proportion since September 2005. In manufacturing, only 40.5% of 84 industries were hiring. Average hourly earnings rose 4 cents, or 0.2%, for the second straight month. Average earnings are up 4% in the past year, the same as in August and the largest since June 2001. Still, average hourly earnings are barely rising faster than the inflation rate of 3.8%. End of Story