The job report was better than the headline number indicated. But slower job growth over the past couple of months may lead the FOMC to push back its plans for announcing a reduction in asset purchases.

Job growth in September was much weaker than expected in the Bureau of Labor Statistics’ monthly employment report, according to a survey of employers. The US economy added just 194,000 net jobs over the month, far below the consensus expectation of around 500,000 and PNC’s forecast of 400,000. Job growth in August was revised much higher, to 366,000 from the initially reported 235,000.

Job growth in July was also revised higher, to 1.091 million, from 1.053 million, for a total upward revision of 169,000. Job growth in the three months through September has averaged 550,000; this is down from an average of almost 900,000 in July. Private-sector employment growth was solid at 317,000, but government employment fell by 123,000 over the month. Local government education was an enormous drag (down by 144,000), likely due to seasonal adjustment issues.

Although employment has steadily increased after the economy lost 22 million jobs in March and April last year, it is still down by almost 5 million from its pre-pandemic level. At the current three-month moving average of job growth, employment would be back to its pre-recession level in June 2022.

While the job numbers from the employer survey were weak, the numbers from a survey of households were better. According to that survey, employment rose by a much stronger 526,000 over the month, although those numbers tend to be more volatile than the employer survey. At the same time the labor force (number of people either working or looking for work) fell by 183,000 over the month. Thus the unemployment dropped by a much larger than expected 0.4 percentage point in September, to 4.8%. This is the lowest the unemployment rate has been since the 3.5% rate in February 2020, just before the pandemic came to the U.S.

However, the steadily falling unemployment rate obscures some ongoing labor market distress. The labor force participation rate — the share of adults either working or looking for work — fell to 61.6% in September from 61.7% in August, and is down from a pre-recession level of above 63%. Thus there are about 3 million fewer people in the labor force in the fall of 2021 than there were before the pandemic. The drop in the labor force in September occurred even with millions of Americans losing access to unemployment insurance benefits at the beginning of the month as pandemic-related programs expired.

According to the employer survey goods-producing industries added 52,000 net jobs in September, with increases of 26,000 in manufacturing and 22,000 in construction. Private service-providing industries added a net 265,000 jobs over the month. This included an increase of 74,000 in leisure/hospitality services, and that industry’s flat August job number was revised to an increase of 38,000. Still, employment in leisure/hospitality services is still down by 1.6 million, or more than 9%, from its pre-recession level, and job growth in leisure/hospitality services is much weaker than it was just a few months ago, when it was regularly adding more than 300,000 jobs per month. Employment in trade, transportation and utilities increased by 120,000 in September, including an increase of 56,000 in retail trade; retail trade employment fell slightly in August. There were job gains of 60,000 in professional/business services in September, but employment in education and health care fell by 7,000.

Government employment fell by a very large 123,000 over the month, including net job losses of 144,000 in local government education. It is likely that school re-openings have distorted the education numbers. Federal government employment was flat over the month, and total state and local government employment fell by 123,000.

The average workweek in the private sector increased by 0.2 hours to 34.8 hours, and the average wage jumped by 0.6% as businesses compete for workers. Average hourly earnings are up almost 5% over the past year, despite much of the job growth coming from low-wage industries like leisure/hospitality services and retail.

The September jobs report was a mixed bag. The headline number was disconcertingly weak, but much of that came from local government employment, likely due in large part to seasonal adjustment issues. In addition, there was a big upward revision to August job growth, and September job growth could be revised higher as well. And the job numbers from the household survey were better. Still, job growth was slowed from its very rapid pace earlier in the summer, due to an increase in coronavirus cases and difficulties in hiring.

All of this creates a dilemma for the Federal Open Market Committee when it meets on November 2 and 3; this is the last jobs report before that meeting. The FOMC has indicated that it is ready to announce a reduction in its purchases of long-term assets, designed to put downward pressure on long-run interest rates. But that decision is predicated on “substantial further progress” toward full employment.

Average monthly job growth of just 280,000 in August and September may not meet that hurdle, although the total job numbers are not telling the entire story. The FOMC may decide to hold off on announcing a reduction in asset purchases until its mid-December meeting, when it would also have the October and November jobs reports. In addition, there may be more clarity then about the debt limit and a potential government shutdown.

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