U.S. Jobs: Are Two Months of Low Numbers a Trend?

It's that time of month again. The Bureau of Labor Statistics has issued jobs numbers for September. Once again the numbers come as an unexpected and unpleasant surprise. Indeed, it's almost a repeat of last month, when the consensus forecast called for numbers of around half-a-million, and the actual report was less than half that amount.

This time, however, the actual number of jobs added came in at 194,000. This is well under the initial August amount of 235,000 (which is raised by a whopping 131,000 to 366,000 in this latest jobs report). July's numbers got a little boost of 38,000, rising from 1.053 million to 1.091 million.

If we look at the resulting average for the trailing quarter –550,000 – it shows starkly how far behind that number the September results turn out to be — just over 35 percent, in fact.

Forecast versus Reality

Employment tracking firms like ADP (which does payroll for many U.S. companies) and Challenger, Gray and Christmas (which places people across a broad range of industries and market sectors) usually issue forecasts in the middle of the week that the U.S. BLS is scheduled to produce its prior month tallies.

Earlies this week, ADP guesstimated an employment number of around half-a-million (500,000). Economic reporting on this forecast was that these numbers were respectable but somewhat disappointing in view of the June and July numbers, both of which broke the 1 million mark.

It's interesting to understand what accounts for the discrepancy between forecasts and official counts. Outside firms don't have the raw data to crunch that state and federal governments do. The best they can do is to make educated guesses based on their own substantial databases, and scale them up to match the whole country.

The problem, of course, is that "certain adjustments" must always come into play to scale up from the individuals and data sets that companies have at their fingertips to the whole complex assembly of moving parts that is the U.S. labor market. Sometimes, they fudge things well enough to get them right (or close). Sometimes, alas, they get them wrong to varying degrees.

This month and last, to everyone's disappointment, the forecasts were much rosier than the actual numbers. Now we must adjust. Sigh. That said, unemployment took a pretty major dip at the same time, from 5.2 percent in August to 4.8 percent in September.

Where Did Growth Occur?

For the year so far (January through September), growth still comes in at 561,000 jobs. Given (revised) August numbers at 366,000 and those for September at 194,000, things are clearly moving away from that average (and in the wrong direction). What everybody is wondering — and why I gave this article its title — is whether these two months are a temporary deviation, or if they represent the start of a slowdown that will continue for some time. Who knows?

A look at where September growth occurred may help shed some light on what's going on with various labor market sectors, so here's a bit more detail to ponder:

Leisure and hospitality grew by 74,000 in September, with more than half that (43,000) in arts, entertainment and recreation. Food services and drinking places changed little for a second month, against average monthly growth of just under 200,000 for January through July. Employment in this sector remains down by 1.6 millionsince February 2020.

Professional and business services increased by 60,000 in September. Those gains came in architectural and engineering services (15,000), management and technical consulting services (15,000), and computer systems design and related services (9,000). Employment in this sector is down by 385,000 vis-�-vis February 2020.

Retail trade added 56,000 jobs, after 2 months of flat growth. In this sector, clothing and accessories stores added 27,000 jobs, general merchandise outlets 16,000, and building materials and garden supply stores 16,000 as well. Food and beverage outlets dropped 12,000 jobs to offset some of those gains. Employment in this sector is down by a bit more than 200,000 since February 2020.

Transportation and warehousing grew by 47,000 jobs in September, on track with the two preceding months. Those gains came in warehousing and storage (16,000 jobs), couriers and messengers (13,000 jobs), and air transportation (10,000 jobs). On a positive note, employment in this sector is up by 72,000 above pre-pandemic levels in February 2020.

Information (our home sector) added 32,000 jobs for September, for the first official gain in some months. Jobs grew by 14,000 in motion picture and sound recording, by 11,000 in publishing industries (excluding Internet), and by 6,000 in data processing, hosting and related services. Employment in this sector is down by 108,000 as compared to February 2020.

Social assistance saw a 30,000 job gain for September, mostly in an 18,000 jump for child day care services. For the whole sector, employment is still down by 244,000 vis-�-vis February 2020.

Manufacturing added 26,000 jobs for September, with increases of 8,000 for fabricated metal products, 6,000 for machinery, and 4,000 for printing and related support activities. These gains were offset somewhat by a loss of 6,000 jobs in motor vehicles and parts, as the chip shortage continues to hamper production of new automobiles. Employment in this sector is down by 353,000 relative to pre-pandemic levels in February 2020.

Construction gained 22,000 jobs, but is mostly flat for all of 2021. The whole sector is down by a little more than 200,000 jobs as compared to February 2020.

Wholesale trade added 17,000 jobs, of which 16,000 were in durable goods. The whole sector is down by 159,000 vis-�-vis February 2020.

Mining added a modest 5,000 jobs, mostly in support activities for mining (4,000). According to the report, mining has added 59,000 jobs since August 2020, but remains down by 93,000 from its January 2019 (pre-pandemic) peak.

Local and state government education lost a combined 161,000 jobs, of which 144,000 were at the local level, and 17,000 at the state level. Private education lost 19,000 jobs as well. Overall, the education sector is down across the board as compared to February 2020: 310,000 for local government education, 194,000 for state government education, and 172,000 for private education.

Healthcare remained mostly flat for September, with an 18,000 job loss overall. Within the sector, nursing and residential care facilities lost 38,000 jobs, hospitals lost 8,000 jobs, offset by a 28,000 gain in ambulatory health care services. Overall the sector has lost 524,000 jobs as compared to February 2020.

The only relatively unaffected sectors were financial activities and the other services category.

Looking at these sectors, the ones that involve face-to-face contact with the public seemed to suffer most (excepting retail trade). In particular, I see food services and drinking places jobs as a highly sensitive indicator of public confidence and sentiment. When that sector falls or stays flat, it appears to say, "We're in a holding pattern right now. Stay tuned for further developments."

I do see it as encouraging that growth affects the vast majority of sectors that BLS tracks (10 of 14, with two others down, and two other flat). To me, this stays the recovery continues, even if its pace has slowed down. This looks like a conservative, take-no-chances approach to coping with the Delta surge, not an imminent recession.

The labor market may be sputtering, but it's not about to quit, nor does the recovery appear ready to fizzle out at any moment.

What About Wages?

With inflation staying at record levels of around 5 percent, it should come as no surprise that wages are up, too. Average hourly wages increased by 14 cents per hour for private-sector production and nonsupervisory employees, bumping the overall average up to $26.15.

The report mentions that "rising demand for labor associated with the recovery from the pandemic may have put upward pressure on wages." This, too, no doubt contributes to a five-month trend in larger-than-usual wage growth. I don't think it's over yet, either.

Other Sources, Other Voices

The Washington Post's coverage of the report calls September "another weak month." The front page headline leads with "Hiring falls short of expectations as virus stifles recovery."

As with much other coverage, the delta surge takes the blame for relatively weak and lackluster numbers — and rightly so, in my opinion (and as the detailed growth number in my preceding section here also support). Hurricane Ida also came in for mention, with its impact on the Gulf Coast states, delayed school openings, and reduced activity in fossil fuel industries.

The Wall Street Journal led with "US Job Growth Falls to Slowest Pace of Year." In addition to the Delta variant, however, the WSJ also reported that "a persistent shortage of workers restrained the ability of companies to hire." Both sources cited a lower-than-expected employment upsurge as kids returned to school, which many labor economists had apparently been factoring into their forecasts (but which failed to manifest as anticipated).

The story goes onto mention "the shrunken labor force" as "perhaps the biggest mystery right now." That said, one big reason why workers aren't returning to the workplace is laid squarely at the feet of the Delta variant ("fear of catching the coronavirus," as cited in an August worker survey from Indeed.com). An Indeed economist went so far as to say that as soon as the coronavirus danger abates, workforce participation will increase.

And finally, NPR coverage also seizes on the coronavirus as the reason why the economy "slammed the brakes on hiring in August" as well as September. Interestingly, they also cite to the September report as "artificially depressed by statistical adjustments" related to local school district jobs.

144,000 such jobs are reported as cut in September, but NPR points out it could be misleading because seasonal adjustments may have been mistimed because of teacher hiring over the summer (which does not correspond to normal patterns in teacher hiring and layoffs).

NPR also mentioned the cessation of unemployment benefits, the return of kids to school, and the upcoming holiday shopping season as reasons to be optimistic for longer-term employment trends and activities. As usual, we'll wait and see how it all turns out.

At the End of the Day, The Recovery Continues Limping Along

All in all, I do see reasons for optimism over the next few months. The trend in the infection rate, despite the Delta surge, is also good. In fact, it dropped below 100,000 on the Washington Post front page this morning, for the first time since early August.

It may be too early to say that the Delta surge is over, but it's clearly slowing down. As long as that line continues its downward slope, causes for optimism and an improved jobs outlook should still be in the cards.