Delta Slows September Job Growth
The labor market remained somewhat anemic in September, as the surging Delta variant limited hiring. The economy added 194,00 new positions, 300,000 fewer than expected, the smallest gain since December 2020, and lower than the upwardly revised 366,000 in August. In addition to Delta, the September data were negatively impacted by a drop in public sector education, likely due to a statistical blip, and also by worker shortages, especially for lower wage positions. Economist Joel Naroff advised to look beyond the disappointing headline, because “other than volatility in the education sector, this was actually a good report, as the labor market continues to firm.”
The unemployment rate, which is calculated based on the number of people working or actively seeking employment, fell by 0.4 percent to 4.8 percent, the lowest since the pandemic began. That occurred due to a combination of people getting jobs, but also because the labor force fell by 183,000, remaining 3 million below its pre-pandemic level. Notably, the contraction in the labor force occurred despite the expiration of enhanced federal unemployment benefits for more than six million workers.
What is keeping would-be workers out of the job market? Diane Swonk, Chief Economist at Grant Thornton, maintains that in addition to COVID fears, “An acute shortage of affordable childcare, the need for upskilling and mobility constraints are the most often cited reasons for workers who remain on the sidelines.” The labor force participation rate, which is the share of adults working or seeking work, has held at or below 61.7 percent since June 2020, that’s down from 63.4 percent in Jan 2020. “Participation in the labor force tends to lag overall improvement in the labor market,” says Swonk.
For those who are working, the smaller labor force helped push up wages. The average hourly earnings of private-sector workers climbed 4.6 percent in September compared with a year earlier, which is good news for households, who are contending with higher prices.
The September report should keep the Fed on track to begin tapering its $120 billion monthly emergency bond buying program as soon as next month. But the process could bump up against the debt ceiling if Congress does not act by the newly self-imposed December 3rd deadline. Fed Chairman Jerome Powell and Treasury Secretary Janet Yellen have warned that not addressing the nation’s statutory borrowing limit could be catastrophic to the U.S. and global economy. It would also likely push the Fed to enter the market to purchase those defaulted bonds.
As far as interest rates, the Fed is likely to remain on the sidelines. There are likely to be renewed calls for the Fed to act after the next round of inflation data are released in the coming week. Powell has maintained that higher prices are mostly temporary, and if some of the increases remain sticky, the Fed will be able to manage them with its monetary policy toolbox. “That is easier said than done,” according to Swonk, who fears that waiting too long could “up the ante of an overshoot or boom/bust in the U.S.” and may also serve to destabilize emerging markets, “which have fewer resources to service that debt if rates rise.”