Key Takeaways
- With a record number of job openings, the expiration of extended unemployment benefits, and less need to stay home and oversee online school, expectations were high heading into the September jobs report.
- But the Bureau of Labor Statistics' jobs report came in at just 194,000 job gains for the month. Fortunately, this came after upward revisions the prior two months added another 169,000 job gains.
- If the current pace of monthly jobs growth holds steady at around 500,000, we would get back to the pre-pandemic trend path in second-quarter 2023. However, based on the recent softer-than-expected job reports, there is a concern that the pace has started to slow closer to 230,000, which would mean the jobs market wouldn't get back to its pre-pandemic trend until fourth-quarter 2025.
- The September jobs report has some calling into question whether the Fed still believes that "progress continues broadly as expected," enough to warrant tapering later this year--but we think it's unlikely to change the Fed's plan to announce tapering of bond purchases at its November meeting.
Expectations were high leading into the September jobs report. Record-setting job openings, the expiration of extended unemployment benefits, and less need to stay home and oversee online school for little ones meant that more people would be willing to accept jobs in September. Private-sector payrolls jumped by 568,000 in the month according to the ADP survey, which only strengthened expectations for a solid report. The Bureau of Labor Statistics' (BLS) jobs report paled in comparison, at just 194,000 job gains for the month.
Fortunately, this came after upward revisions the prior two months added another 169,000 job gains. July job gains were revised up by 38,000 to an outstanding 1,091,000, while the reading for August payrolls was revised up by 131,000 to a little less painful 366,000 job gains for the month. Nonfarm employment is still down by 5.0 million, or 3.3%, from its pre-pandemic level in February 2020 (see chart 1).
Chart 1
On a positive note, the unemployment rate fell by 0.4 percentage points to 4.8% in September as it inches closer to its pre-pandemic level of 3.5% seen in February 2020 (see chart 2). Factoring in all the people who left the labor force since February 2020, the adjusted unemployment rate is a still-high 6.6%, suggesting that the Fed can wait a little longer before it raises rates. Fortunately, the share of long-term to total unemployed workers has drifted down from its peak of 43.4% in March to 34.5% in September (see chart 3). We currently expect the Fed to raise rates for the first time since the pandemic recession late next year, after bond purchases dwindle to zero. We expect the jobs market to strengthen later this year. But if the soft patch it's currently going through turns into quicksand--something we do not expect--normalization will be put on hold.
Chart 2
Chart 3
The softer-than-expected September jobs report has some calling into question whether the Fed still believes that "progress continues broadly as expected," enough to warrant tapering later this year. While another soft reading isn't a pleasant proposition, it still seems unlikely that this will shift the Fed's plan to announce tapering of bond purchases at its November meeting. The payrolls report comes on the back of huge ADP private-sector job gains, a large drop in the unemployment rate, and record-setting job openings.
Moreover, hourly wage gains climbed another 0.6% over August and are up an astonishing 4.6% year over year, the highest since February 2021 (see chart 4). The Atlanta Fed Wage Growth Tracker, an indicator that, unlike the BLS wage data, is less susceptible to compositional or demographic changes, also shows a significant impact on wages, at 3.9% year over year, its highest since July 2020.
Chart 4
Chart 5
Chart 6
On a related front, the personal consumption expenditure (PCE) price index rose to 0.4% month over month in August 2021 and is up 4.3% over last August--the highest since January 1991--as supply bottlenecks drive prices for goods and services higher. Core PCE, excluding food and fuel, was also up, by 0.3% over July, though month-over-month gains have trended lower after surging to 0.6% in March (see chart 7). On a year-over-year basis, core prices are up by 3.6% in August, almost twice the Fed's average inflation target of 2.0%. While disruptions across the supply chain for goods and services largely explain these high prices, there is only so long the Fed can wait until what it calls "largely transitory factors" driving prices higher feed into inflation expectations.
Chart 7
Thus far this year, monthly jobs growth has averaged 561,000. If the current pace were to hold steady at around 500,000 (a medium scenario), we would get back to the pre-pandemic trend path in the second quarter of 2023 (see chart 8). While the jobs market is going through a soft patch, it's not time to throw in the towel. We expect once job market distortions are unwound this fall, people currently out of the market will return to looking for work. With that, a 500,000-monthly average for job gains seems like a reasonable expectation for the jobs market this year and next.
However, based on the recent jobs reports, there is a concern that the low-hanging fruit has been picked and the pace has started to slow closer to 250,000, which would mean the jobs market wouldn't get back to its pre-pandemic trend until fourth-quarter 2025. Any effect from COVID-19, particularly the delta variant, remains a risk to jobs growth in the coming months.
Chart 8
Table 1
| Review Of U.S. Economic Indicators | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Release date | Measurements | Jul-21 | Aug-21 | Sep-21 | Level year ago | Year-over-year | ||||||||||
| Labor market | ||||||||||||||||
| Four-week moving average of initial claims | 10/7/2021 | in 000 | 395 | 356 | 341 | 851 | ||||||||||
| Unemployment rate | 10/8/2021 | % | 5.4 | 5.2 | 4.8 | 7.8 | ||||||||||
| All employees, total nonfarm | 10/8/2021 | change in '000 | 1,091 | 366 | 194 | 716 | ||||||||||
| All employees, total private | 10/8/2021 | change in '000 | 816 | 332 | 317 | 932 | ||||||||||
| Average hourly earnings of all employees, total private | 10/8/2021 | m/m,% | 0.36 | 0.4 | 0.6 | 4.6 | ||||||||||
| Average weekly hours of all employees, total private | 10/8/2021 | (Hours of Work) | 34.7 | 34.6 | 34.8 | 34.8 | ||||||||||
| Total nonfarm private payroll employment | 10/6/2021 | change in '000 | 321.5 | 339.7 | 568.1 | 821.1 | ||||||||||
| Labor force participation rate | 10/8/2021 | % | 61.7 | 61.7 | 61.6 | 61.4 | ||||||||||
| Job openings: total nonfarm | 9/8/2021 | millions | 10.9 | 6.7 | ||||||||||||
| Consumer spending and confidence | ||||||||||||||||
| Personal income | 10/1/2021 | m/m,% | 1.1 | 0.2 | 6.1 | |||||||||||
| Real disposable personal income | 10/1/2021 | m/m,% | 0.7 | (0.3) | 0.2 | |||||||||||
| Personal consumption expenditures | 10/1/2021 | m/m,% | (0.1) | 0.8 | 11.6 | |||||||||||
| Personal saving rate | 10/1/2021 | % | 10.1 | 9.4 | 15.0 | |||||||||||
| Total vehicle sales | 10/1/2021 | Millions | 15.1 | 13.5 | 15.7 | |||||||||||
| University of Michigan: Consumer Sentiment | 10/1/2021 | Index | 81.2 | 70.3 | 74.1 | |||||||||||
| Advance retail sales: retail trade and food services | 9/16/2021 | m/m,% | (1.8) | 0.7 | 15.1 | |||||||||||
| Advance retail sales: retail trade | 9/16/2021 | m/m,% | (2.2) | 0.8 | 13.1 | |||||||||||
| Industrial activity | ||||||||||||||||
| Industrial Production: total index | 9/15/2021 | m/m,% | 0.8 | 0.4 | 5.9 | |||||||||||
| Industrial Production: manufacturing (NAICS) | 9/15/2021 | m/m,% | 1.6 | 0.1 | 6.2 | |||||||||||
| Total business inventories | 9/16/2021 | m/m,% | 0.5 | 7.2 | ||||||||||||
| Capacity utilization: total index | 9/15/2021 | Index | 76.2 | 76.4 | 72.3 | |||||||||||
| Current General Business Conditions; Diffusion Index for New York | 9/15/2021 | Index | 43.0 | 18.3 | 34.3 | 17.0 | ||||||||||
| Chicago Fed National Activity Index | 9/23/2021 | Index | 0.8 | 0.3 | 1.2 | |||||||||||
| Current General Activity; Diffusion Index for Federal Reserve District 3: Philadelphia | 9/16/2021 | Index | 21.9 | 19.4 | 30.7 | 15.0 | ||||||||||
| Housing | ||||||||||||||||
| New privately owned housing units started: total units | 9/21/2021 | millions | 1.55 | 1.61 | 1.38 | |||||||||||
| New privately owned housing units authorized in permit-issuing places: total units | 9/24/2021 | millions | 1.63 | 1.72 | 1.52 | |||||||||||
| New privately-owned housing units completed: total units | 9/21/2021 | millions | 1.39 | 1.33 | 1.22 | |||||||||||
| Monthly supply of houses in the U.S. | 9/24/2021 | Months | 6 | 6 | 4 | |||||||||||
| Total construction spending: total construction in the U.S. | 10/1/2021 | m/m,% | 0.3 | 0.0 | 8.9 | |||||||||||
| External trade | ||||||||||||||||
| Trade balance: goods and services, balance of payments basis | 10/5/2021 | billions | (70.3) | (73.3) | (63.7) | |||||||||||
| Exports of goods and services, balance of payments basis | 10/5/2021 | billions | 212.7 | 213.7 | 174.3 | |||||||||||
| Imports of goods and services: balance of payments basis | 10/5/2021 | billions | 283.0 | 287.0 | 238 | |||||||||||
| Import Price Index (end use): all commodities | 9/15/2021 | m/m,% | 0.4 | (0.3) | 9 | |||||||||||
| Export Price Index (end use): all commodities | 9/15/2021 | m/m,% | 1.1 | 0.4 | 16.8 | |||||||||||
| Prices | ||||||||||||||||
| Producer Price Index by Commodity: final demand | 9/10/2021 | m/m,% | 1.0 | 0.7 | 8.3 | |||||||||||
| Producer Price Index by Commodity: final demand: finished goods less foods and energy | 9/10/2021 | m/m,% | 0.8 | 0.5 | 4.6 | |||||||||||
| Consumer Price Index for All Urban Consumers: all items in U.S. city average | 9/14/2021 | m/m,% | 0.5 | 0.3 | 5.2 | |||||||||||
| Consumer Price Index for All Urban Consumers: all items less food and energy in U.S. city average | 9/14/2021 | m/m,% | 0.3 | 0.1 | 4.0 | |||||||||||
| Personal consumption expenditures: chain-type price index | 10/1/2021 | m/m,% | 0.4 | 0.4 | 4.3 | |||||||||||
| Personal consumption expenditures excluding food and energy (chain-type price index) | 10/1/2021 | m/m,% | 0.3 | 0.3 | 3.6 | |||||||||||
| Note: Data retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/ m/m--month over month. Last three months selected. Yearly data is either year-over-year change (%) or level value year ago. Total nonfarm private payroll employment is from ADP. Data retrieved on Oct. 8, 2021. | ||||||||||||||||
Table 2
| Economic Release Calendar | |||||
|---|---|---|---|---|---|
| Date | Release | For | Forecast | Consensus | Previous |
| 13-Oct | CPI | Sep | 0.3 | 0.3 | 0.3 |
| CPI (excluding food and energy) | Sep | 0.2 | 0.3 | 0.1 | |
| 14-Oct | PPI | Sep | 0.6 | 0.6 | 0.7 |
| PPI (excluding food and energy) | Sep | 0.5 | 0.5 | 0.6 | |
| Initial claims, week of 10/9/21 (K) | 320 | 329 | 326 | ||
| 15-Oct | Retail sales | Sep | 0.1 | 0.0 | 0.7 |
| Retail sales (excluding auto) | Sep | 0.4 | 0.5 | 1.8 | |
| Empire State Index | Oct | 29.0 | 27.8 | 34.3 | |
| Export Price Index | Sep | 0.2 | 0.5 | 0.4 | |
| Import Price Index | Sep | 0.4 | 0.5 | (0.3) | |
| Aug business inventories | Aug | 0.4 | 0.6 | 0.5 | |
| University of Michigan Consumer Sentiment (prelim) | Oct | 74.6 | 72.5 | 72.8 | |
| Treasury budget (bil. $) | Sep | 175.0 | 165.0 | (170.6) | |
| 18-Oct | Industrial production | Sep | 0.3 | 0.2 | 0.4 |
| Capacity utilization | Sep | 76.4 | 76.5 | 76.4 | |
| 19-Oct | Housing starts (mil.) | Sep | 1.635 | 1.630 | 1.615 |
| 21-Oct | Philadelphia Fed Index | Oct | 29.0 | 25.5 | 30.7 |
| Leading indicators | Sep | 0.5 | 0.4 | 0.9 | |
| Existing home sales (mil.) | Sep | 5.910 | 6.000 | 5.880 | |
The views expressed here are the independent opinions of S&P Global's economics group, which is separate from, but provides forecasts and other input to, S&P Global Ratings' analysts. The economic views herein may be incorporated into S&P Global Ratings' credit ratings; however, credit ratings are determined and assigned by ratings committees, exercising analytical judgment in accordance with S&P Global Ratings' publicly available methodologies.
This report does not constitute a rating action.
| U.S. Chief Economist: | Beth Ann Bovino, New York (1) 212-438-1652; bethann.bovino@spglobal.com |
| U.S. Senior Economist: | Satyam Panday, New York + 1 (212) 438 6009; satyam.panday@spglobal.com |
| Contributor: | Shuyang Wu, Beijing |
| Research Contributor: | Arun Sudi, CRISIL Global Analytical Center, an S&P affiliate, Mumbai |
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