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The Baton Passes to the Private Sector

RFP
Payroll employment jumped by 531,000 jobs in October after being revised up sharply for September. September payrolls are now showing a gain of 312,000, more than a third higher than initial estimates for the month. Employment gains in the private sector surged by 604,000 after upward revisions to September. Employment in public education, which has struggled to compete with higher paying jobs elsewhere and a tsunami of retirements, fell again during the month. The employment cost index for the private sector was double that for the private sector in the third quarter. The government sector subtracted 73,000 jobs from payrolls in October, most of which were in public education at the state and local levels.

The most important issue is that the Federal Reserve left the door open to accelerate its pace of tapering after its December meeting. Another gain in employment like this virtually guarantees that will happen in early 2022. The threshold for a liftoff in rates is much higher, but could easily occur by mid-2022.

Gains in the private sector were broad-based. Leisure and hospitality led overall gains with 164,000 new hires during the month. The gains were concentrated in food services and accommodation, reflecting the receding Delta wave and the desire to step out again. We also saw gains in the arts and sporting venues. Broadway reopened in September, while a series of blockbuster movies, including the last installment of James Bond, helped to fuel hiring at theaters.

Next up was professional and business services, rising by 100,000. Gains were in both full-time and temporary help as consultants scrambled to fill open positions. Competition for talent has intensified, with workers being lured away between the large audit, tax and advisory firms. Wage hikes of 20%-30% are not uncommon among the youngest and most educated of workers. Finance added only 21,000 but competition has also been acute among investment banks.

Manufacturing posted a gain of 60,000, buoyed by the return of production at motor vehicle and parts plants. Several plants were idled in September due to supply chain disruptions, largely in the vehicle sector. Computer chips have been in particularly short supply.

There was some catch-up on order backlogs evident in the purchasing managers’ surveys for the month as well, although inventories remain at extremely low levels. Mining activity also picked up again, but remains suppressed. This could mean some increase in shale production, which would alleviate the upward pressure on prices at the gas pump, but not anytime soon.

The strike at John Deere of 10,000 workers started late in the survey week for this report. (Anyone who receives an hour of pay during the week of October 12 was counted on payrolls for the month.)

Transportation and warehousing added 54,400 new jobs, about the same as we saw in September. Retail added 35,300 jobs. Food and beverage stores and big-box discounters dominated gains, as they staffed up to deal with the Halloween rush.

The return of Halloween was critical as it is the second largest spending holiday of the year. The shelves of candy were bare in my neighborhood, while decorations seemed to adorn every house. The house across the street played a haunted house soundtrack for hours, which rattled my dog but was music to my ears as a sign of something normal.

Construction employment jumped by 44,000 jobs, driven by gains in commercial specialty contractors. Our own efforts to reconfigure our offices have been delayed by a surge in demand for construction workers as large employers attempt to bring workers back into the office, if only on a hybrid basis.

Average hourly earnings moved up a solid 0.4% and jumped 4.9% from a year ago. Gains accelerated. They were most pronounced in transportation and warehousing. Amazon announced signing bonuses and additional wage hikes over the month.

Wage gains in leisure and hospitality accelerated after a brief slowdown during the Delta wave. A slowdown in Delta cases accelerated the demand for services, mostly travel and tourism. That demand is expected to intensify as the borders open to vaccinated foreign tourists and workers in November.

Hours worked fell slightly to 34.7 hours per week, which is elevated relative to pre-pandemic levels; overtime hours in the manufacturing sector fell slightly to 3.2 hours per week, with the strike at John Deere dealing holding back overall gains.

Separately, the unemployment rate fell 0.2% to 4.6%, according to the household survey, which reported even stronger employment gains for the month. The gap between the unemployment rate for white and Black workers widened. The participation rate remained unchanged at 61.6%. The participation rate among Black workers fell slightly; that was due to a drop in participation by Black teens - an outlier - and a further erosion in participation by Black women. The participation rate among Black men picked up slightly. Overall, women regained some ground but men lost in the aggregate.

The ranks of the long-term unemployed continued to drop but remain elevated. The number of people who could not work because they were ill fell by 150,000 after surging over the summer and into September. Look for that figure to fall further as we move into November -- as long as caseloads continue their downward trajectory.

The household pulse survey showed a large drop in the number of people who did not look for work because they were caring for someone who was ill between September and October. That could show up as a pickup in participation in November.

Bottom Line
The private sector is picking up the baton from the public sector. The economy is regaining momentum as the Delta wave abates. That opens the door for the Fed to adjust its pace of tapering of asset purchases when it meets again in December. I expect the Fed to accelerate its pace of tapering in early 2022. The threshold for a liftoff in rates is higher. We are now expecting three rate hikes in 2022.

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