October 08, 2021 | 09:16
U.S. Nonfarm Payrolls (Sep.) — Good Enough To Taper
U.S. hiring remained brisk in September despite the growing challenge of finding workers. While the headline 194,000 increase in nonfarm payrolls greatly missed the consensus call (close to 500,000), it belies the considerable underlying strength in the labour market, for several reasons. First, a good chunk of the miss was due to wonky seasonal adjustment in public education, where a reported 161,000 positions were shed. The sector is still down materially during the pandemic, so we should see some payback on this front. Second, private payrolls jumped 317,000 amid broad based solid increases in most sectors, including leisure and hospitality (as the Delta wave showed signs of cresting), retail, manufacturing, construction, and professional and business services. Third, the prior two monthly gains were revised up a total of 169,000. Fourth, recall that payrolls ballooned by more than two million in the June-July period. Of course, there's still more wood to chop, with payrolls still 5.0 million below February 2020 levels, but the labour market is clearly headed in the right direction.
And last but not least, the household survey was even more stellar, apart from a discouraging downtick in the participation rate that has been locked in a tight range well below pre-virus levels for more than a year. This rate will need to pick up to sustain strong job growth in the year ahead. Besides that, though, the survey reported over half a million new jobs, lifting the employment rate a couple of notches and dropping the unemployment rate from 5.2% to 4.8%. Aggregate work hours popped 0.8% in the month to extend their Q3 gain to 5.0% annualized...which puts some meat on our 4.5% call for Q3 GDP growth (though there is still some downside risk given the temporary downshift in consumer spending).
Growing labour shortages are fanning wages, with average hourly earnings up 0.6%, taking the yearly rate to 4.6%. Expect further strong increases as the jobless rate continues to fall. The big question is how much will feed into prices and sustain high inflation.
Was the September jobs report "decent" enough to spur a Fed tapering announcement on November 3? It sure is. Chair Powell didn't need a "knock-out" jobs report to start tapering, and this one clearly wins by unanimous decision. We grade it 91.7 (on a scale from 0 to 100 with 50 as the passing mark), so still a solid A+.
Bottom Line: Millions of UI recipients lost benefits with the end of the federal emergency programs. How quickly they can fill the nearly 11 million job openings will determine the course of employment growth in the year ahead. At least for now, demand is not an issue.