For the second straight month, the U.S. economy created jobs at a much slower pace than was hoped for or expected, with one of the only silver linings coming in the fact that the overall total was held back substantially by a sharp drop in government employment.
Nonfarm payrolls rose by just 194,000 in the month, compared with the Dow Jones estimate of 500,000. The unemployment rate fell to 4.8%, better than the expectation for 5.1% and the lowest since February, although that number is also skewed by the number of people who dropped out of the job search altogether.
The headline number was hurt by a 123,000 decline in government payrolls, while private payrolls increased by 317,000.
We’ll examine a few key points to give you an idea of where the economy stands.
The unemployment rate improved….sort of
The unemployment rate fell for a third straight month and by much more than was expected. Now at 4.8%, it is 10 percentage points south of its peak level in April 2020. Most economists agree it is an imperfect measure of the health of the labor market, but it still factors heavily in both the average person’s and typical policymaker’s reckoning of the economy, and it is improving at a pace not seen after most recessions. In fact, the latest level is already where Federal Reserve officials on balance had estimated it would be at the end of the year.
Unfortunately, the drop in the jobless rate came as the labor force participation rate edged lower, meaning more people who were sidelined during the coronavirus pandemic have returned to the workforce. A more encompassing number that also includes so-called discouraged workers and those holding part-time jobs for economic reasons declined to 8.5%, also a pandemic-era low.
Wages increased….sort of
Despite the weak jobs total, wages increased sharply. The monthly gain of 0.6% pushed the year-over-year rise to 4.6% as companies use wage increases to combat the persistent labor shortage. The available workforce declined by 183,000 in September and is 3.1 million shy of where it was in February 2020, just before the pandemic was declared.
There’s no shortage of anecdotes about employers enticing people back to work with higher pay, but given how noisy the data has been during the coronavirus pandemic, finding evidence of a real trend emerging has been challenging. The Labor Department’s average hourly earnings data, however, has settled down in the past half a year and a new – and for now higher – growth pattern appears to be emerging. Average hourly pay rose 0.6% last month – again more than expected – and over the last six months has now averaged a gain of 0.5% per month. That’s roughly twice the monthly wage increase that prevailed before the pandemic.
The reason for these unusual–some may even say unnatural–numbers is labor shortages continue to put severe upward pressure on wages at a time when the return of low-wage leisure and hospitality workers should be depressing the average. Simply put, when burger joints are hiring workers at $15/hr, it pushes up the overall wage average, aka wage inflation. One of the many forms of inflation with which Joe Biden has become synonymous. Joe Biden could not be more closely affiliated with inflation if he released his own brand of penis pump.
$300 a week goes bye-bye
Among the many superlatives in the September report, this one jumped off the page: The ranks of the long-term unemployed, or those out of work for more than half a year, fell by the most ever last month, with 560,000 people leaving those rolls. Why? Simple – the money ran out. A $300 a week federal supplement to standard state jobless benefits expired near the start of the month. The emergency program had been on its way out since the early summer when 26 mostly Republican-led states ended the benefits early. But the final cull occurred last month. The question now is how many of those people transition back into the job market in the months ahead.
The fact that we’re still so slow to recover with jobs numbers despite these checks drying up is not a good sign. Jobs numbers should be roaring back just as a function of pent-up demand, yet recovery is still anemic.
Anatomy of our job creation
As depressing as the job numbers are, it’s a worthwhile venture to examine where they’re being created.
Leisure and hospitality again led job creation, adding 74,000 positions, as the unemployment rate for the sector plunged to 7.7% from 9.1%. Professional and business services contributed 60,000 while retail increased by 56,000.
Job gains were spread across a variety of other sectors: Transportation and warehousing (47,000), information (32,000), social assistance (30,000), manufacturing (26,000), construction (22,000) and wholesale trade (17,000).
Among the most puzzling numbers of the report: local government education jobs fell by 144,000. But why?
Schools reopened this year in far greater numbers than a year ago when vaccines were still in the development stage and many public schools kicked off a year of hybrid or fully online instruction. So why did public school employment drop by 144,000 last month? Answer: It didn’t. It’s all the fault of “seasonal adjustments.” September is typically the strongest month for hiring at U.S. public schools, with roughly 850,000 jobs added at the start of each school year from 2000 through 2019. Then came the pandemic and September job growth at public schools in the last two years was 15-20% below that trend – throwing off the Labor Department’s seasonal-adjustment models.
The report comes at a critical time for the economy, with recent data showing solid consumer spending despite rising prices, growth in the manufacturing and services sector, and surging housing costs.
Federal Reserve officials are watching the jobs numbers closely. The central bank recently indicated it’s ready to start pulling back on some of the extraordinary help it has provided during the pandemic crisis, primarily because inflation has met and exceeded the Fed’s 2% goal.
However, officials have said they see the jobs market still well short of full employment, a prerequisite for interest rate hikes. Market pricing currently indicates the first rate increase likely will come in November 2022.
Inflation is taking off while the job market continues to barely drudge along. That puts the Fed in a difficult spot of holding off of interest rate hikes despite easily surpassing the level of inflation with which they’re comfortable. The economy is a #BigFatMess that is rapidly becoming too muddled to understand. The amount of government and Federal Reserve tampering with our economy has greatly diminished what predictive capability we had in what is already a very inexact science.
Over the next few months (it’s already started, in fact), you will see White House talking points meant to explain away what should be (but isn’t) a surging economy. They’ll talk about a lingering fear of covid infection within the workforce. You’ll hear about the need for childcare affecting job searches. You’ll even hear about how the virtual age ushered in by the pandemic has shifted the types of work people are looking for.
What you won’t hear, however, and what is painfully obvious to any levelheaded observer, is that this massive shutdown should have never happened to begin with. It didn’t protect against the virus in an discernible way and its second, third and fourth order effects will be felt for years–maybe decades–to come. And so we’ll continue to look to government to fix the problems they created in the first place.
The cycle continues.
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