Job gains in September disappointed, showing the impact of the Delta variant but also letting down expectations that the expiration of unemployment insurance benefits would drive increased job growth. Some of this weakness showed up in non-seasonally adjusted public education jobs not returning for the fall to the same extent they would have before the pandemic, causing a dip in the seasonally adjust measure of those jobs.
On a non-seasonally adjusted basis, the net number of payrolls added in September was right around average looking back at all the Septembers of the 10 years preceding covid. The seasonally adjusted additions last month were therefore close to the average of all months during that 10 year period. The disappointing thing is that what was normal for the last decade shouldn’t necessarily be normal for this recovery. The slowdown on a seasonally adjusted basis from the first half of 2021 becomes clear in the chart below.
Without knowing the high expectations for job gains, a lot would have looked great at a surface level in this report given the unemployment rate dropped 0.4%pts, the long-term unemployment rate also fell 0.3%pts, and employment to population ratios continued to climb higher. That is, until you recognize that all of these developments came on the back of weak labor force participation. The overall LFPR ticked down in September and has treaded water for the last 12 months. The prime-age LFPR has shown more upside than the overall LFPR this year, but backtracked by 0.2%pts in September. Prime-age LFPR must have been affected by Delta in the last couple of months. To what extent the virus should be blamed entirely should become clear as cases continue to wane.
|NFP growth, k|
|Prime-age UR, %||5.5|
|Prime-age LFPR, %||81.3||81.3||81.8|
|Prime-age EPOP, %||78|
|PTER, % of payrolls||3.5||2.9||2.9|
|Long-term UR, %||2.6||2.6|
|AHE, % m/m||0.4||0.4|
|AHE, % y/y||4|
|Source: BLS, @benbakkum.|
Leisure & hospitality job gains likely reflect the impact of Delta as the string of strong net additions through the first half of the year tapered off in recent months. Professional services, information, and transport & warehousing industries appear to be accelerating.
The recovery in the percentage of jobs lost can be seen to be slowing but still maintains a solid overall trend relative to the post-Global Financial Crisis recovery.
If the average job growth of the last three months continues at the same pace, the labor market would fully recover to where it would have likely ended up had the pandemic not occurred around the middle of 2023.
An aggregate measure of labor market conditions, the Blanchflower-Levin employment gap, shows that slack continues to decline, with underemployment (a major source of slack during the last cycle) having quickly disappeared. My interest is in how long the participation gap will linger during this cycle.
Note: the unemployment gap is the difference between the unemployment rate and the non-accelerating inflation rate of unemployment (NAIRU). The participation gap is the difference between the labor force participation rate (LFPR) and the CBO’s estimate of the potential LFPR. The underemployment gap is the difference between the number of employees working part-time for economic reasons as a percentage of the labor force, adjusted for the difference in the average number of hours worked by part-time and full-time employees, and the 1994-2007 average of this calculation.