Wages and employment are still relatively solid. Butrisks that hang over the economy include President Trump'strade policy and weakness abroad, while the effect of last year'stax cuts is wearing off. (Photo: Shutterstock)

(Bloomberg) — Crawling or stalling? That's the question hangingover the U.S. economy amid fresh evidence the once-hotlabor market is losing steam.

Nonfarm payrolls expanded by 136,000 inSeptember, according to a Labor Department report Fridaythat missed the median estimate of economists.

That brought the average gain this year to 161,000, comparedwith 223,000 throughout 2018. On top of that, average hourlyearnings rose 2.9% from a year earlier, the weakest rate sincemid-2018.

Yet the unemployment rate declined to a fresh half-century lowof 3.5%, with the pace of hiring remaining above what's needed toaccommodate population growth. And pay for production andnonsupervisory workers held up better than the overall numbers.

Markets appeared to take the report as a sign growth would holdup.

Traders of fed funds futures slightly reduced the amount ofeasing they expect from the U.S. central bank this year andmarginally trimmed their expectations for a third straight rate cutthis month. U.S. stocks rose though the Treasury yield curveflattened and the dollar remained lower.

"The picture is complicated," said James Sweeney, chiefeconomist at Credit Suisse Group AG. The labor market is slowing,but there are "no signs that we're suddenly falling into arecession or something like that."

Wages and employment are still relatively solid.

But risks continue to hang over the world's largest economy,including President Donald Trump's trade policy and weaknessabroad, while the effect of last year's tax cuts keeps wearingoff.

Trump took the chance to boast about the jobless rate onTwitter, but manufacturing jobs declined for the second time thisyear.

Friday's report caps a week of U.S. economic data that whipsawedstocks and sent already-low Treasury yields tumbling, led by a keymanufacturing gauge that sank deeper into contraction with theworst reading in a decade.

A slowdown also threatens Trump's re-election prospects nextyear, with the president frequently staking his message on a strongeconomy.

The data offer a contrast with characterizations by Fed ChairmanJerome Powell and his colleagues at recent meetings that job gainshave been "solid,'' though they may still have room to stick withthat assessment.

Late Thursday, Fed Vice Chairman RichardClarida said the economy remains on solid footingand recession risks aren't "particularly elevated under appropriatemonetary policy."

Powell is scheduled to deliver opening remarks at 2 p.m. inWashington at a Fed event, followed by comments from governors LaelBrainard and Randal Quarles.

"This is a muddled middle sort of report," Mohamed El-Erian,chief economic adviser to Allianz SE, said in an interview onBloomberg Television. "It's not weak enough to confirm thatweakness is spreading from global manufacturing throughout theeconomy, but not strong enough to suggest that we are immune."El-Erian is a Bloomberg Opinion columnist.

What our economists say

The muted factory-recession impact evident in the latestjobs data is testament to the resilience of economic growth atpresent. This is wholly consistent with Bloomberg Economics'assessment that growth will slow below 2% in the back half of theyear, while recession risk remains low. – Carl Riccadonna,Yelena Shulyatyeva and Andrew Husby

Revisions were a bright spot, adding 45,000 jobs for the priortwo months, though the three-month average still fell to 157,000from 171,000.

The job gains were concentrated in health care and professionaland business services. Retail employment contracted for aneighth-straight month, while construction payroll growth remainedtepid.

Manufacturers subtracted 2,000 jobs, continuing a trend towardweaker growth and damping one of Trump's key campaign messages. Itlikely reflects the slowdown at factories, seen also in data fromthe Institute for Supply Management, which points to slowerproduction and orders amid weakening demand for goods.

Average hourly earnings were little changed from the priormonth, missing estimates for a gain, while the 2.9% annual wagegain fell below all estimates in Bloomberg's survey of economists.Pay for production and nonsupervisory workers held up, though, witha gain of 3.5%, down only slightly from a decade-high of 3.6%.

The U-6, or underemployment rate, slipped to 6.9%, the lowestsince 2000, from 7.2%. Some analysts see this as a more accuratereflection of the labor market as it includes part-time workerswho'd prefer a full-time position and those who aren't activelylooking.

 –With assistance from VinceGolle and Sophie Caronello.

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