Monthly Employment Report Is a Big Disappointment—Again

‘Concerning’ results mean labor market recovery is taking longer than expected

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Job growth slowed sharply in September, posting the smallest monthly gain this year and signaling the labor market is taking longer than expected to recover.

Key Takeaways

  • Job growth of 194,000 in September was the smallest this year, indicating the labor market recovery is taking longer than expected.
  • While the private sector added 317,000 positions, government jobs fell by 123,000.
  • Economists expect more people to rejoin the workforce in the coming months, but employers will have to “pay through the nose” to get them.

The U.S. economy added 194,000 nonfarm jobs last month, seasonally adjusted government data released Friday showed, well below economists’ expectations for a 487,500 increase, according to Moody’s Analytics. Government jobs were the biggest loser, dropping by 123,000, mainly in local government education, as return-to-school hiring was lower due in part to quarantines brought on by the delta variant of the coronavirus. The private sector added 317,000 jobs, paced by leisure and hospitality’s gain of 74,000, up from August’s 38,000 increase.

Despite the lackluster job growth, the unemployment rate fell from 5.2% to 4.8%, although some of the decline was attributed to a persistently weak labor force participation rate. That rate—which measures how many people 16 and older are working or actively looking for work—dipped to 61.6% and has stayed in a narrow range, between 61.4% to 61.7%, since June 2020, the Bureau of Labor Statistics said. Before the COVID-19 pandemic, the rate was 63.3%.

“The big question remains when people are going to be more willing to fill the roughly eleven million job openings around the country, a record high and about four million greater than the number of openings prior to COVID,” FT Advisors economists wrote in a commentary.

Even though August nonfarm payrolls were revised up to 366,000—and July’s figure went up to 1.09 million—the overall trend for the job market has been disappointing lately. In the spring, when vaccines became more widely available and the economy began to fully reopen, consumers were eager to return to normal. Spending at restaurants, bars, airlines and hotels picked up and job growth soared. But when the fast-spreading delta variant took hold, activity slowed and labor shortages worsened, as some workers who’d built up their savings decided to wait it out. Now that delta cases appear to have peaked and enhanced unemployment benefits have expired across the country, economists expect people to jump back into the job market and put the recovery back on track.

With the holidays ahead and household expenses set to rise, ING Chief International Economist James Knightley said job growth could accelerate in the last two months of the year. He added, however that that prospect has to be weighed against the possibility of structural changes in the labor market from more people retiring, lower birth rates, and fewer immigrants arriving (due to border closures), which could keep the labor supply tight and force companies to continue boosting workers’ pay.

Indeed, the average hourly wage rose 0.6% month-over-month in September—the largest increase since April—bringing the year-over-year rate to 4.6%.  

“That may not sound like a lot . . . but when businesses are getting what few people they can to come back into the workforce, they’re really having to pay through the nose for them,” said Matt Matigan, CEO of Blue World Asset Managers. “That’s really going to exacerbate the inflation problem that we’ve been talking about for the last several months. Overall, this was a very, very concerning report.”

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