Payrolls Plunge
Nonfarm payroll employment dropped 199,000 in September after declining 84,000 in August. The September decline was across the board, not just concentrated in manufacturing where the lion's share of the declines has come from in the past year. Among service producing industries the largest decline came in the retail sector. Within retail, the largest number of losses was in the eating and drinking component. According to the Labor Department, the September figures reflect very little effect, if any, from the Sept 11 attacks on the World Trade Center and Pentagon. However, the fall-out from the attacks is likely to affect October payrolls. This means that weakness in the labor market was evident going into September. Even accounting for monthly variations, the three-month moving average of the payroll figures shows steep downward momentum.

The civilian unemployment rate remained unchanged in September at 4.9 percent with sharp gains in both the labor force and employment. One shouldn't read too much into the gains since they merely offset last month's sharp plunge in both categories. But taking the two months together shows deterioration in labor market conditions, a trend that's apparent from the beginning of summer.

Average hourly earnings edged up 0.2 percent in September but the year-over-year change came in at 4.3 percent, the same range as the past several months. It is possible that the trend in hourly earnings will moderate in coming months with the weaker employment picture.

Surprisingly the average workweek rose to 34.1 in September from a level of 34 in August, marking a slight gain of 6 minutes. But the Labor Department announced on Thursday in advance of the employment release that the September 11 attacks wouldn't necessarily affect September payrolls though they could very well reduce the workweek. The manufacturing workweek did drop to 40.5 from 40.7, but the private workweek maintained its pace. It will be interesting to see if the workweek is reduced at all next month.

All in all, the employment situation showed a deteriorating picture of the economy. The plunge in factory payrolls coupled with a decline in the workweek points to another drop in industrial production. At the same time, the decline in total payrolls coupled with the meager gains in the workweek and earnings point to little growth, if any, for personal income.

Manufacturing declines moderating
Factory orders were unchanged in August inching down 0.1 percent in July. Orders for nondefense capital goods rose 1 percent, a drop in the bucket after the declines of the past several months but perhaps reflecting some signs of life in the industry. The chart below depicts quarterly changes in total orders, nondefense capital goods and information technology. The third quarter figure is still missing September's data, but the trend looks improved with smaller declines in July and August relative to the previous two quarters.