U.S. payrolls in September rose by 194,000, missing the consensus expectation of 500,000. However, private payrolls were solid along with sizable upward revisions to the prior two months. Meanwhile, the unemployment rate fell to 4.8% from 5.2%.
The big “hole in the boat” in September was education, which lost roughly 180,000 jobs across local, state, and private employers. Much of that weakness is likely related to seasonal adjustments and should be revised in the coming months.
More importantly, there were plenty of signs of continued strength under the surface. Private hiring remained solid across most industry groups. Moreover, wage gains for most workers rose at the fastest clip since June 2020 (when many employers used hero bonuses to entice workers to return). It was especially strong in the face of headwinds from Hurricane Ida.
Looking ahead, expect more month-to-month swings going forward due to pandemic-support programs expiring and persistent wage tensions, where workers hold out for higher wages and employers balk. Ultimately, this report supports our outlook for above-trend economic growth and our belief that peak economic growth does not mean weak growth. Lastly, we don’t believe this report will change the Federal Reserve’s (Fed) path toward announcing tapering at its November meeting.
The headline jobs growth was lighter than the consensus expected. However, it was remarkable given the headwinds from Hurricane Ida, which cut a swath of destruction from the Gulf Coast to the Northeast, and the normal downshift in summertime activity that occurs after Labor Day. Furthermore, the delta variant was still an issue, especially early in September. Again, the pre-pandemic three-year average for job growth was 169,000 per month. Perhaps it was the consensus expectations that were out of step.
Digging deeper, there were plenty of signs of continued strength under the surface. The drop in the unemployment rate is notable and was coupled with an acceleration in wage and income growth, which is encouraging and supportive of broader economic growth.
We expect more month-to-month swings in job growth going forward due to pandemic-support programs expiring and persistent wage tensions. While there is plenty of grumbling about worker shortages and an inability to fill open positions, there's ample evidence of workers holding out for higher wages and employers balking.
Certainly, some of these holdout workers are a result of the pandemic support, such as extended unemployment benefits and checks from the CARES Act and American Rescue Plan. Yet, a large portion are simply armed with better information, which is called price discovery in economics.
Many more employers are now including the hiring wage in their job postings, which was quite rare prior to the pandemic, especially for entry-level and low-skilled positions. Previously signs in restaurant and retail store windows would say, “We’re hiring!” Now, those window posters shout, “We’re hiring at $15/hour!”
In the past, workers would literally drive around town to see if employers were hiring and at what wage. Very few employers would reveal the hiring wage until after people applied and fewer still would readily tell someone the wage over the phone. Besides being exhausting, most workers would only know about a handful of possible jobs and their starting wages. That lack of information held down starting wages. Between employment apps, online job postings, and the shift in employers’ wage secrecy behavior, the job search experience and wage transparency have dramatically changed.
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