When the October U.S. employment report is released on Friday, a central area of focus will be on the potential return of women in their prime working years to the labor force as the delta variant fades, child care becomes more available, schools reopen and hiring accelerates.
A central challenge for policymakers and lawmakers is to raise the labor force participation rate, especially among minorities.
We expect that the October report will result in a total increase in employment of 475,000 and a decline in the unemployment rate to 4.7%. Average hourly earnings we expect will advance by a robust 0.4% month over month and by 4.7% on a year-ago basis.
In addition, we expect that the increasing demand for services that was evident in the gross domestic product data for the third quarter—spending on services rose by 7.9% on the quarter—augurs well for hiring in that sector.
Getting back to work
But as the economy emerges from the shock of the pandemic, a central challenge for policymakers and lawmakers is to raise the labor force participation rate, especially among members of minorities.
For Latino women, the rate has fallen from a pre-pandemic three-month moving average of 70.9% to 67%, while for African-American women it has declined to 77.2% from 79%. There is ample room for improvement in the coming months for these cohorts that were disproportionately affected by the pandemic.
The decline has not been as steep for white working women, whose labor force participation rate has declined to 75.1% from 75.4% before the pandemic.
These key metrics will be in focus among the public and with policymakers, who are preparing to shift from pandemic-era accommodation toward the normalization of monetary policy and who are working to reshape the U.S. safety net in the fiscal arena.
A delayed return
Over the past two business cycles, people have tended to stream back into the workforce once the unemployment rate falls below 5%. That has not yet happened this time, as baby boomers exit the workforce and as prime-aged Latino and African-American women ages 25 to 54 remain on the sidelines in large numbers.
While this is going to play out over the next three to six months, the October report should provide a glimpse into what to expect as broader fiscal and monetary policy changes are put in place.
Why the focus on these metrics? The quicker that people return to the workforce, the more comfortable the Federal Reserve will be in identifying what constitutes full employment—one of its mandates—in the post-pandemic economy and in crafting a narrative about the normalization of monetary policy and an eventual increase in interest rates.
The takeaway
We expect that the combination of falling jobless claims, the strong ISM manufacturing employment sub-index and improved confidence among people to return to the labor force and begin normal social interaction should bolster overall hiring.
Moreover, that pivot toward services in the third quarter denotes some upside risk on our forecast of a net gain of 475,000 in total employment.
