Economy and Policy
October 08, 2021
Chief Economist Scott Brown discusses current economic conditions.
There was another “disappointing” gain in nonfarm payrolls in September (up 194,000, vs. a median forecast of +500,000), but it’s not as bad as it looks. Less hiring at the start of the school year resulted in a decline in (adjusted) education jobs. Non- education jobs rose by 374,000 (with a three-month average of +487,000). As Fed Chair Powell indicated in his September 22 press conference, the central bank is not going to base its tapering decision on any one report, but this release adds to evidence of “substantial further progress” in labor market conditions (the taper trigger). There is some debate about how much slack remains in the job market, but no chance that the Fed will raise short-term interest rates anytime soon.
There are seasonal patterns in the job market. The holiday shopping period is a major one. Another is the school year. We normally add about 1.5 million education jobs each September (and another 650,000 or so in October). This September, we added 1.3 million. Seasonal adjustment turns that into a decline of 180,000 in adjusted education jobs. We saw this play out in the previous school year, where less hiring at the start led to fewer layoffs at the end, which translated into large (adjusted) education “gains” in June and July. The Delta variant was surely a constraint on job growth last month, in which case we should see a pickup as new COVID cases decline. We also saw an upward revision of 169,000 to July and August.
While the payroll gain was lower than expected, the drop in the unemployment rate (to 4.8%, from 5.2%) was a bigger surprise. Some of that was due to the end of extended unemployment benefits. Instead of boosting employment, the expiration of extended benefits led some to drop out of the labor force. In most cases, to receive unemployment benefits, one has to be actively looking for a job, which also satisfies the definition of “unemployed” (without a job, but actively looking). If you give up looking, as many do when benefits expire, you are no longer classified as “unemployed.” Labor force participation did edge down last month (to 61.6%, from 61.7%), still well below the pre-pandemic level (63.3%).