Jobs miss market expectations in September
KPMG Chief Economist Constance Hunter discusses how the Delta variant has impacted the pace of jobs growth and other key takeaways from this month's report.
Today we saw the delta variants fingerprints all over the September jobs data. Jobs increased by 194,000 and the August number was revised up slightly. However, the headline numbers really don't tell the full story if we look at things like the total number of hours worked which went up in September. This indicates that employers had difficulty hiring. They had to rely on existing workers working more hours in order to meet the demands of their businesses. Furthermore, we still have a very large deficit in child-care which indicates that not everybody is able to go back to work if they have an in-person job and finally we saw the diffusion index increase at a lower pace. All of this suggests that it is the delta variant that caused the slow pace of jobs growth in September. What this means is that the fed is likely to look past this data and interpret it as a temporary speed bump due to the delta variant and likely the pace of jobs growth will accelerate in the fourth quarter provided we can keep the virus in check.
More than meets the eye: September’s slower-than-expected jobs growth tied to multiple factors
Today’s jobs data confirmed that the speed bump in economic growth due to the Delta Variant continues to be seen in the September jobs data. The headline number showed that the economy added 194,000 jobs, but the key data is contained in the details of the report. Those details in the form of hours worked, the continued deficit of childcare jobs compared to the pre-pandemic level, as well as the data around labor market re-entrants all suggest that the speed bump in the data is due to the Delta Variant. This means the Fed is likely on track to taper its bond purchases starting in November despite the soft jobs data.
The Delta speed bump was evident in much of the underlying data
The mix of jobs changed in September. The gain was concentrated in the private sector which added 317,000 jobs offsetting the 123,000 public sector loss. This tells us that despite the speed bump from the Delta Variant, private sector demand for workers remains. Nevertheless, employers are finding it challenging to find workers. This is evident both in the increase in hours worked and the fall in the labor force participation rate. The fall in the labor force participation rate, likely due in large part to the Delta Variant, was responsible for the corresponding fall in the unemployment rate to 4.8%. Likewise, the increase in hours worked from 34.6 to 34.8 shows that employers leaned on their existing staff to meet business demands rather than hire new workers.
Additional evidence of Delta was seen in the important category that employs workers in restaurants and bars. After a decline of 24,700 workers last month, September posted an increase of 29,000. This is far below the pace seen earlier this year as vaccinations paved the way for more in person activity to occur safely for both employees and patrons.
Wage pressures continue
Wages rose 4.6% year over year representing a 0.6% increase this month. In high contact sectors where survey evidence shows workers are hesitant to return due to concerns about the virus or unable to return due to less availability of childcare, wages are running above average. Other high demand and high skill sectors are also seeing wage pressures. In the later case we believe it is likely for some of these wage pressures to continue over the next several years. In the case of sectors such as leisure and hospitality, which saw a 10.8% year over year increase in wages, these pressures are likely to abate as the pandemic recedes.
Evidence of underlying economic momentum remains despite the Delta induced speed bump. The consistency of jobs growth in industries that are less effective by month-to-month fluctuations in COVID-19 cases. Manufacturing and professional services have now showed strong growth for five consecutive months and retail and construction employment accelerated in September.
We expect jobs growth to improve through the end of the year, but month-to-month performance will continue to depend on the path of the virus and aversion behavior. Clearly, COVID continues to dictate economic outcomes. We anticipate that the pace of real GDP growth will slow to 1.7% in Q3 before regaining momentum in the fourth quarter to post a 5.1% growth rate for the year.