Labor Market In Flux

Payroll employment is expected to rise by 300,000 in September. That is above the Delta variant-suppressed miss of 235,000 new jobs in August but still weak, given the reopening surge in spring and early summer. Private sector payrolls are expected to rise by 350,000. Education payrolls are still down 2.6 million jobs from a peak in February of 2020. The problem is the seasonal adjustment of the data. We usually hire back more than 1.5 million people in private and public education in September, which means we need more than that for the figure to turn positive for the month. That is possible, given the 2.6 million jobs we are still down since the peak in February, but not probable. The spread of the Delta variant forced newly reopened schools to quarantine in September; many districts are struggling with a flood of staff retirements and cannot find help, due to fear of contagion.

High frequency data suggests that hiring in the leisure and hospitality and retail sectors abated. We are taking that data with a grain of salt because it is focused on smaller restaurants and retailers, which cannot compete on wages with large retail and restaurant chains. The larger firms are leveraging technology to offset the crimp that higher wages have on their margins, which is concentrating employment at those firms. The seasonal adjustment factors are easier for September, which suggests we could eke out small gains.

Hurricane Ida reared its ugly head in late August,16 years to the day after the devastation of Hurricane Katrina. Back then, Katrina suppressed employment gains in September and October.

The flooding that hit the Northeast as a result of Ida was very disruptive last month. It adds insult to injury to supply chain interruptions associated with the pandemic and will likely take a toll on manufacturing employment, including vehicle plants. Chip shortages in the vehicle and appliance sectors worsened when the Delta variant idled critical production in Vietnam and Malaysia.

Job gains are expected to be stronger in professional services and finance. Health care, which should be driving employment gains, has slowed while burnout has intensified. We could actually see losses in health care employment for October. Many workers refused to get vaccinated and quit or have been fired from hospitals. Labor shortages are so acute that some medical centers have been forced to scale back outpatient clinics and even critical services, including maternity. Dr. Jeffrey Gold, Chancellor of the Nebraska Medical Center said at a recent economic conference that hospitals are losing up to 35% of their frontline workers to burnout due to COVID.

We expect to see average hourly earnings rise 0.4% from August to September. That translates into a 4.6% increase in wages from one year ago. A shift toward higher paid professional services and finance jobs should provide a boost. Wage gains in the leisure and hospitality sector are expected to continue moderating after surging at the onset of reopening. Amazon has upped its wages yet again for holiday season hires, which could provide another leg up for low-wage workers but crowd out small businesses which cannot afford to match them. Hours worked during September most likely flatlined at 34.7 hours per week. Overtime hours likely fell in the manufacturing sector as supply chain shortages idled production.

Separately, the unemployment rate is expected to edge down to 5.1% from 5.2% in August. The participation rate is expected to remain unchanged, despite the more than six million workers who lost expansions and supplements to unemployment insurance at the start of September. An acute shortage of affordable childcare, the need for upskilling and mobility constraints are the most often cited reasons for workers who remain on the sidelines; many workers in urban centers cite the lack of transportation to jobs in suburbs or resorts. The pandemic triggered a major reset of how workers view where and how they want to work, which is playing out across all income strata.

Federal Reserve Chairman Jay Powell made it clear that the Fed is eager to taper its asset purchases, even if employment remains subdued in September and October. What could stop the Fed from beginning to taper monthly purchases of Treasuries and mortgage-backed bonds? A failure to raise the debt limit before the Treasury runs out of funds to service the debt would likely force the Fed to intervene and buy Treasury bonds that the government had defaulted on. The hope would be to prevent a worse financial crisis than 2008-09. The potential blow to the Fed’s credibility and the world’s faith in the dollar as reserve currency are unimaginable.

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