September Employment Lands Short of the Mark
The September jobs reports brought more troubling signs that the labor market rebound that began in earnest in May as furloughed workers returned to work and peaked in June with a one month 4.78 million job gain is rapidly petering out as winter approaches.
Nonfarm payrolls increased a less than forecast 661k in September down from 1,489k in August with U.S. employment still 10.74 million jobs below the February peak.
During the Great Recession the U.S. economy lost only 8.7 million jobs over more than a 2-year period.
Most concerning to me is the large decline in the labor force participation rate in September to 61.4% from 61.7% in August, suggesting more working age people are just deciding to give up on work. You have to go back all the way to 1976 to find labor force participation rates at these low levels. The U.S. labor force has shrunk 2.4% from year ago levels.
The labor force participation rate plunged during the Great Recession and its aftermath and has never really recovered, only seeing a period of stabilization and improvement before taking another pandemic plunge. The U.S. labor force participation rate peaked at 67.3% back in March of 2000. While aging and exiting baby boomers are behind some of this decline in the participation rate, no other labor market metric really captures the extent of the underlying weakness in the health of the U.S. labor market better than this one in my opinion.
While the headline unemployment rate dropped somewhat more than forecast in September to 7.9% from 8.4% in August. This only modestly improves our forecast for the Q4 unemployment rate to an average 7.7% from 7.8% previously, and we made no downward revision to our unemployment rate forecasts for 2021. We still see the U.S. unemployment rate averaging 6.3% in the fourth quarter of next year as GDP growth in the United States downshifts into more of a U-shaped pattern from the V-shaped reopening rebound we have been in over the past five months.
Indeed, the U.S. labor market recovery remains highly uneven with many groups and industries making little to no progress. In September, the unemployment rate dropped for Whites and Asians, but was little changed for teenagers, Blacks and Hispanics. The BLS also reported that due to survey misclassification errors of the unemployed, the true U.S. unemployment rate could be as high as 8.3% in September.
Moreover, the easy labor market gains are likely already behind us. In September alone, 1.5 million fewer folks saw themselves as temporarily unemployed. The temporary unemployed now number just 4.6 million, down from 18.1 million in April, and only 3.8 million above February’s level. Moreover, the level of long-term unemployment is rising. The long-term unemployed, those jobless for 27 weeks or more increased by 781,000 to 2.4 million last month. Reflecting the lingering weakness in the U.S. labor market, average hourly earnings growth slipped to just 0.1% in September down from 0.3% in August.
Of the 661k net new jobs re-created in September, nearly half were in the leisure and hospitality sector, though leisure and hospitality employment is still 3.8 million lower than in February. Outsized job gains were also seen in retail trade, and professional and business services last month.
Manufacturers managed to add back a better than expected 66k jobs too. Government employment was the biggest drag on overall job growth last month, with government payrolls dropping by 216k, highlighting the need for additional fiscal support from Washington D.C. to limit the pandemics damage to state and local governments. State and local government education jobs fell 49k and 231k respectively, while Federal employment dropped by 34k as the number of temporary Census workers declined.
The September job growth and unemployment decline is welcome news, but U.S. labor market improvement is increasingly falling short of the mark and the game is not yet won. Like in football, the path ahead for the labor market will be more of a ground game rather than a passing game – a game of hard fought rushing inches rather than easily won passing yards.
To learn more about how today’s payroll report impacts our forecasts for the economy and interest rates, check out this week’s U.S. Outlook Report.