One month after an underwhelming August jobs report, the newest data from the U.S. Bureau of Labor Statistics (BLS) continued to paint a picture of a labor market struggling to regain traction.
Total nonfarm employment rose by only 194,000 in September — the fewest jobs added in nine months — and grossly undershot many forecasts. Economists polled by Reuters anticipated payrolls increasing by roughly 500,000 jobs.
“Job growth remained lackluster in September following similarly disappointing gains in August,” said Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association. “Although private-sector job growth was at 317,000 and several categories showed gains – including professional services – there was a large drop in education employment (a decline of 161,000 in September). This was a byproduct of school hiring still being relatively weak compared to the typical seasonal patterns.”
Some observers had hoped that the return of kids to school would help employment bounce back as most back-to-school hiring generally occurs in September. BLS noted that recent employment changes can be difficult to interpret due to pandemic-related staffing fluctuations, but whatever the case, the backtrack in education employment was a major factor in government jobs plummeting by 123,000 month over month in September.
An optimistic interpretation of the September report is that hiring wasn’t quite as weak as the headline figure suggests, considering the sizable dent that government job decreases made in overall employment gains. Still, it remains clear that a moribund supply of workers is holding back hiring efforts. The labor-participation rate receded modestly to 61.6% (a figure that has remained between 61.4% and 61.7% since June 2020), and the labor force within prime working ages inched back by 0.2 percentage points.
A shortage of workers helped to drive wages up in September, with average hourly earnings rising by 0.6%. While some wage growth can be attributed to slower-than-expected employment gains in lower wage tiers where workers are still hesitant to return, it’s worth noting that average hourly earnings were up 4.6% year over year.
The U.S. unemployment rate, meanwhile, fell to 4.8%, its lowest point since February 2020. Some of the decrease was propelled by people leaving the labor force, but a major factor was a reduction of 710,000 in the number of unemployed persons. This sharp decline, Wells Fargo reported, suggests that the expiration of emergency unemployment benefits may be leading some to take new jobs.
Wells Fargo economists Sarah House and Michael Pugliese wrote that the next few months could see labor-force stagnation begin to change.
“We expect to see the labor-force participation rate, particularly for prime-age workers, to bounce back in coming months,” they wrote. “Based on the latest Census Bureau Household Pulse Survey, 1.3 million fewer individuals were not looking for work due to child care compared to this time last year, and health concerns are likely to fade alongside the drop in COVID cases after the delta surge. But September’s drop in participation underscores that frictions remain prevalent and the jobs recovery will take time.”
Fratantoni added that rising wages and a decline in the jobless rate will only help to bolster an already strong housing environment.
“The ongoing decline in the unemployment rate and the rise in wage growth is good news for the housing market, as it will continue to support strong housing demand,” he said. “With 7.7 million people unemployed and looking for work, and a record 10.9 million job openings, we expect the unemployment rate will continue to drop over the next year.”
He added, however, that house hunters could be in for further hits to affordability due to certain factors in the labor report.
“With respect to implications for the housing and mortgage markets, the drop in the unemployment rate below 5% and the other indicators of job-market strength are likely to be sufficient for the Federal Reserve to move forward with tapering their asset purchases,” Fratantoni said. “This will likely lead to modest increases in interest rates, putting additional pressure on housing affordability at a time [that] home-price appreciation is still very high.”
