Who's Hiring And Who's Firing In September

If one looks at the weeds of today's jobs report which showed just 194K jobs added, the lowest monthly increase in 2021, and missing all but one of the 72 economist forecasts, it was hardly the stinker the headline number suggested. For one, the unemployment rate slumped to 4.8% from 5.2% as the number of unemployed workers (counted by the Household Survey) plunged by 710K while the number of employed rose 526K, even as the civilian labor force declined by 183K. Another positive aspect is that hourly earnings rose 0.6% from the previous month, up from 0.4% in August. Then there were the prior revisions which added a total of 169K in the previous two months.

But despite these mitigating factors, the focus was on the headline print (which comes from the Establishment Survey) and which was, for lack of a better word, dismal, and not far from where the Fed would reconsider a November taper announcement (certainly pay attention to what FOMC members will say in the coming weeks, at least those who don't day trader).

Drilling down into the headline jobs print, we find several notable highlights:

First, the number of private payrolls, at +317K, was actually not that bad and was virtually unchanged from last month's 332K (post revision and 243K pre). Expect upward revisions next month as the BLS "normalizes" its seasonal adjustment rate. Of note here, while leisure and hospitality hiring was depressed in August and September due to the delta wave, at least it was above zero. Recall that the original August jobs report showed 0 gains for the sector, a number which has since risen to 38,000. In September, another 74,000 jobs were added with continued job growth in arts, entertainment, and recreation (+43,000) and while still below the run rate of the previous several months, the number is not as bad as previously feared.

Second, and most importantly, the single biggest contributor to the lousy jobs report was the shocking drop in government workers, which tumbled by 133K. This was the biggest monthly decline since Oct 2020.

This number was entirely due to a loss of 144K government education jobs. Commenting on the plunge in local government teachers, the BLS said that "hiring this September was lower than usual, resulting in a decline after seasonal adjustment. Recent employment changes are challenging to interpret, as pandemic- related staffing fluctuations in public and private education have distorted the normal seasonal hiring and layoff patterns."

What this likely means is that next month the BLS will revise its seasonal adjustment model to account for the easing in the pandemic, and reverse much if not all of this report's drop. And if it doesn't, it means that even more jobs will come online in October and November. In any case, if one excludes the plunge in local education, the jobs report was hardly terrible.

With these caveats in mind, here is who was hiring and firing in September.

  • Professional and business services added 60,000 jobs in September. Employment continued to increase in architectural and engineering services (+15,000), management and technical consulting services (+15,000), and computer systems design and related services (+9,000). Employment in professional and business services is 385,000 below its level in February 2020.
  • Employment in retail trade rose by 56,000, following 2 months of little change. Over the month, employment gains occurred in clothing and clothing accessories stores (+27,000), general merchandise stores (+16,000), and building material and garden supply stores (+16,000). These gains were partially offset by a loss in food and beverage stores (-12,000). Retail trade employment is 202,000 lower than its level in February 2020.
  • Employment in transportation and warehousing increased by 47,000 in September, in line with gains in the prior 2 months. In September, job gains continued in warehousing and storage (+16,000), couriers and messengers (+13,000), and air transportation (+10,000). Employment in transportation and warehousing is 72,000 above its pre-pandemic level in February 2020.
  • Employment in the information industry increased by 32,000 in September. Gains occurred in motion picture and sound recording industries (+14,000); in publishing industries, except Internet (+11,000); and in data processing, hosting, and related services (+6,000). Employment in information is down by 108,000 since February 2020.
  • In September, social assistance added 30,000 jobs, led by a gain in child daycare services (+18,000). Employment in social assistance is 204,000 lower than in February 2020.
  • Employment in manufacturing increased by 26,000 in September, with gains in fabricated metal products (+8,000), machinery (+6,000), and printing and related support activities (+4,000). These gains were partially offset by a decline of 6,000 in motor vehicles and parts. Manufacturing employment is down by 353,000 since February 2020.
  • Construction employment rose by 22,000 in September but has shown little net change thus far this year. Employment in construction is 201,000 below its February 2020 level.
  • In September, employment in wholesale trade increased by 17,000, almost entirely in the durable goods component (+16,000). Employment in wholesale trade is down by 159,000 since February 2020.
  • Mining employment continued to trend up in September (+5,000), reflecting growth in support activities for mining (+4,000). Mining employment has risen by 59,000 since a trough in August 2020 but is 93,000 below a peak in January 2019.
  • Employment in local government education decreased by 144,000 and by 17,000 in state government education. Employment changed little in private education (-19,000). Most back-to-school hiring typically occurs in September. Hiring this September was lower than usual, resulting in a decline after seasonal adjustment. Recent employment changes are challenging to interpret, as pandemic-related staffing fluctuations in public and private education have distorted the normal seasonal hiring and layoff patterns. Since February 2020, employment is down by 310,000 in local government education, by 194,000 in state government education, and by 172,000 in private education.
  • Employment in health care changed little in September (-18,000). Job losses occurred in nursing and residential care facilities (-38,000) and hospitals (-8,000), while ambulatory health care services added jobs (+28,000). Employment in health care is down by 524,000 since February 2020, with nursing and residential care facilities accounting for about four-fifths of the loss.  

And visually:

 It’s not as bad as it looks.

That’s the most important thing to take away from Friday’s release of the September jobs report, which found that employers added 194,000 jobs last month, a far cry from the 500,000 analysts expected. The initial response among experts was to wonder whether it called for an exclamation of a mere “oof” or a more extreme “ooooooof.”

But when you peel apart the details, there is less reason to be concerned than that headline would suggest. The story of the economy in the second half of 2021 remains one of steady expansion that is more rapid than other recent recoveries. It is being held back by supply constraints and, in September at least, the emergence of the Delta variant. But the direction is clear, consistent, and positive.

Much of the disappointment in payroll growth came from strange statistical quirks around school reopening. The number of jobs in state-local education combined with private education fell by 180,000 in September — when the customary seasonal adjustments are applied.

There is reason to think the pandemic made those seasonal adjustments misleading. Schools reopened in September en masse and employed 1.28 million more people (excluding seasonal adjustments) in September than in August. But a “normal” year, whatever that means anymore, would have featured an even bigger surge in employment. In other words, this might be a statistical artifact of a shrinking education sector earlier in the pandemic, not new information about what is happening this fall.

Or as the Bureau of Labor Statistics put it in its release, “Recent employment changes are challenging to interpret, as pandemic-related staffing fluctuations in public and private education have distorted the normal seasonal hiring and layoff patterns,” which is the government statistical agency equivalent of a shrug emoji.

Another detail in the report that takes some of the stings out of the weak payroll gains was the news that July and August's numbers were revised up by a combined 169,000 jobs, implying the economy entered the fall in a stronger place than it had seemed.

Meanwhile, the focus on the underwhelming job growth numbers has masked what should be viewed as unambiguously good news.

The unemployment rate fell to 4.8 percent, from 5.2 percent in August. It fell for good reasons, not bad — the number of people unemployed dropped by a whopping 710,000 while the number of people working rose by a robust 526,000. (These numbers are based on a survey of households, in contrast with the payroll numbers that are based on a survey of businesses; the two diverge from time to time, including this month.)

This represents a remarkably speedy recovery in the labor market — attaining sub-5 percent unemployment a mere 17 months after the end of the deepest recession in modern times. By contrast, in the aftermath of the global financial crisis, the jobless rate did not reach 4.8 percent until January 2016, six and a half years after the technical end of that recession.

Part of it is the unusual nature of a pandemic-induced recession and part of it is the highly aggressive response of fiscal policymakers to the crisis. But the result is that jobs are abundant and most people who want to work can.

And while participation in the labor force remains well below pre-pandemic levels and has lots of room for improvement, it is not as bad as it was in that last expansion.

In September, for example, the share of people 25 to 54 who were in the labor force — that is, either working or looking for work — was 81.7 percent. That is still well below 83.1 percent before the pandemic, but considerably better than the 81 percent achieved in January 2016, the point in the last expansion when the unemployment rate got this low.

Labor force participation remains the Achilles' heel of this recovery. Many Americans who have dropped out of the workforce — because of whatever mix of burnout, challenges with child care, or ability to live on pent-up savings or government benefits — are not yet back in action.

Notably, even as expanded unemployment insurance benefits expired in early September, there was no surge in participation in the labor force. The labor force participation rate for all adults fell by 0.1 of a percentage point, to 61.6 percent. That suggests that the end of extra-generous job benefits may not be the solution to labor shortage woes that many business groups have argued it would be.

Low rates of labor force participation and the weaker-than-expected job growth numbers are most likely two parts of the same story. Businesses want to hire and expand, and labor shortages are real. But there are fewer workers available to be hired right now than there were before the pandemic.

That makes for good opportunities for Americans who do want to work. It is reflected in higher pay — average hourly earnings in the private sector were up 4.6 percent in September from a year ago. But it is also acting as a constraint on just how fast this recovery can go.

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