September U.S. jobs report: One-time factors dampen hiring as unemployment rate falls to 4.8%

Widespread disruption to supply chains, the impact of Hurricane Ida, modest delays in the reopening of schools and day care centers and seasonal noise in the employment data all combined to dampen hiring in September. The United States added 194,000 jobs on the month, the Labor Department reported Friday, far below economists’ consensus estimates of 500,000 and below RSM’s estimate of 375,000. The miss will certainly cause some to urge the Federal Reserve to reconsider what is expected to be the start of its tapering operations later this year. But we do not see this report altering that start date. In September, the U.S. jobs recovery from the pandemic continued to advance, albeit at a slower pace compared to August’s increase of 366,000 jobs, which was upwardly revised from the original estimate of 235,000. The unemployment rate fell to 4.8%, mostly because of a decline in the size of the labor force—a drop of 432,000 in the household survey. Average hourly wages increased by 0.6% on the month and were up by 4.6% on a year-ago basis. Involuntary part-time employment remained essentially unchanged at 4.4 million in contrast with the long-term average of 5.4 million. While wages continue to reflect the labor shortages in the economy, the three-month average annualized pace of wage gains slowed to 5.1% from 5.4% in August. That easing should provide some comfort at the Fed, where officials are surely hearing from firms about wage inflation. Nevertheless, aggregate hours worked increased by 0.8% on the month, which is surely a function of firms trying to increase output as supply constraints limit their ability to meet underlying demand. Those added hours should augment household income and spending going forward.

One-time factors

The main takeaway from the jobs report is that there were so many special one-time factors during the September sampling period that this should not move the needle at the Fed or among investors who still expect growth to advance at or above 4% in the second half of the year. That rate is more than double the long-term growth trend in the economy of 1.8%. This jobs report should not alter the Federal Reserve’s plan to begin slowing its pace of monetary accommodation through its monthly asset purchase program. The Fed expects an acceleration in hiring toward the end of the year that will be accompanied by an improvement in the labor force participation rate, which in September was 61.6%. In our estimation, the Fed is well positioned to announce its plan to pare back its $120 billion per month in asset purchases at its November meeting by roughly $15 billion per month ($10 billion in Treasury securities and $5 billion in mortgage-backed securities). That reduction would put the asset purchase program on target to end next July. Toward that end, the labor force participation rates of prime age women 25 to 54 slipped to 75.3%, while men in that prime-age cohort also saw a modest decline to 88.1%. If there is one factor that will cast doubt on the Fed’s upcoming decision, it is the difficulty faced by those who want to work but are restrained because of special factors as opposed to the slowing in top-line hiring. We think that this is a temporary dynamic and expect prime-age workers to continue re-entering the workforce.

Inside the report

Total private sector job creation advanced by 317,000 while government hiring declined by 123,000 and education and health care jobs fell by 7,000. The declines in the latter two categories can be attributed to a seasonal adjustment and are the primary cause for the subpar top-line number. Perhaps more optimistically, the goods-producing sector added 52,000 jobs, construction added 22,000 and manufacturing 26,000 despite the widespread supply chain challenges that are bedeviling the domestic and global economies. There was an increase of 265,000 service-providing jobs in the private sector, led by 120,000 jobs in trade and transport, 56,000 in retail trade, 32,000 in information, 2,000 in the financial sector, 32,000 in information and 60,000 in business services. For more economic insights on middle market companies, please visit the RSM US website.