Private payroll increased 118k in August, well below the bloomberg consensus again. Net revisions were negative 69k.

The table below shows the expected range for private payroll (excluding outliers), the monthly surprise and revisions to the last 3 months. The actual print is in "red" (an "x" when inside the expected range and a box when outside).

There were 4 large negative surprises in the last 18 months: Aug/14, Mar/14, Aug/15, and Sep/15.

One can see that the average of the median expectations for the last 12 months was 219k/month, very close to the actual releases of 218k/month in the same period (after revisions, private payroll averaged 217k/month in the last 12 months).

In the last 6 months the median expectations averaged 214k/months and the actual release averaged 194k (179k/month after revisions).

In the last 3 months the median expectations averaged 204k/m and the actual release averaged 156k/month (138k/month after revisions).

After August disappointment, a strong emphasis was given to the fact that, since 2009, August payroll had always been revised higher (see chart) -- but the opposite happened this time.

The trend in private payroll (proxied by the 12-month moving average) moved down to 217k/month from 232k/month (unrevised) in August. The chart below shows the current vintage (orange line) as well as the real time path observed in each of the last few months.

The chart below shows that annual growth rate in private payroll is growing at 2.2% yoy -- off the highs but is still a healthy pace of growth.

September annualized growth (1.2%) is close to the recent lows -- which in the recent past proved to be transitory. The current yoy growth (2.2%) continues very close to the growth observed in private payroll in the last 3 years, which is above the peak observed in March/2006 during the previous expansion period and is closer to the growth rate observed in the late 1990´s.

The volume of total hours worked in the economy contracted in September resulting in an annualized contraction of 0.4% in the last 3 months (blue line in the chart below). This is well below the main trend (since Oct/09) which remains at 2.3%. There were several episodes of a similar sharp slowdown in total hours worked since the crisis: Oct/10 to Jan/11, Jan/12 to Jul/12, Feb/13 to Jul/13, Nov13 to Feb/14, Dec/14 to Apr/15, and the last one starting in June.

Contraction in mining and weak manufacturing are behind the stagnation in hours worked in the goods sector.

Hours worked in the services sectors slowed down a bit.

Wages (average hourly earnings) were flat in September.

Wages for all employees rose by 2.2% yoy and for production worker rose 1.9% yoy - stable compared to August. Overall, as the chart below shows, average hourly earnings have consistently grown at about 2% p.a in the last three years.

Total payroll income for production workers contracted sharply in September (-3.6% ar). For all employees, payroll income dropped 2.9% annualized in the month. Payroll income in the goods sector was negative in a quarter for the first time since 2010.

Below the breakdown in goods and services sector.

The labor force participation rate moved 'sharply' down in June to 62.4%, breaking what had appeared to be a stable level. It is interesting to highlight that the most LFPR managed to do was to stabilize in 2014 -- a year in which job creation and labor market conditions improved quite substantially. Will LFPR resume its structural downtrend now that the economy appears to be weakening? This is a crucial question as it could put the Fed in a position where they see labor slack shrinking further at the same time that the economic growth slows.

The broader measure of unemployment (U-6), which includes marginally attached, discouraged workers, and employed part time for economic reasons is falling faster than the headline unemployment -- more on that in the spider charts below.

The median forecast for unemployment rate in the Fed's SEP (Summary of Economic Projections) is 4.8% for 2016, 2017 and 2018. Assuming a flat LFPR, a forecast of 4.8% unemployment rate by the end of 2016 is compatible with average employment growth of 145k/month, even lower than the 167k/month of total payroll observed in the last 3 months (which was way on the weak side -- if a recession does not happen).

As a reference, even a slowdown in employment growth from 2.2% currently to 1.5% yoy (the floor observed since mid-2011 was 1.8% yoy) would be equivalent to monthly employment gains of 178k and this would lead to a 4.5% unemployment rate by the end of 2016. Bottom line: LFPR needs to rebound (or job creation to settle at a very low level) for a 4.8% unemployment forecast to be attainable.

See detailed charts below:

The chart below shows unemployment rate (and short-term unemployment) and the recent tightening cycles (yellow). The short-term unemployment rate is at the lows.

Long term unemployment rate is improving faster. Moreover, the 'shadow' labor (i.e., the gap between U-6 and the headline unemployment rate) is improving faster in the recent months. This is a clear sign that the labor market continues improving.

The two spider charts use 13 measures of labor market activity. The first chart shows how far away the labor market is from conditions that prevailed when employment was at its postrecession low and how close to conditions that prevailed when employment was at its prerecession peak. The second chart converts the upward trending indicators in the first chart to rates. (Source: Atlanta Fed -- details here)

The charts below compare the 13 measures of labor market in July/2015 and Sept/2015. It shows that, despite the sharp slowdown in net job creation in the last two months (payroll), the overall market conditions improved in the period. Note also that Yellen's preferred measures of labor market utilization (e.g., part time for economic reasons, marginally attached) continued to improve in the last couple of months.

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There are 5.7 million job openings in the US...