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On Friday, all focus was on September NFP job data, especially after the upbeat ADP private payroll report. The market was expecting an upbeat headline NFP job additions number amid post-COVID low jobless claims. All focus was also on the U.S. NFP job report for September to see the progress of U.S. employment and whether it could be termed as Fed’s standard of substantial further progress to warrant an announcement of QE tapering in November or December.
The BLS/NFP flash data shows that the U.S. economy (public and private sector excluding farming industry) added only 194K jobs in September, the lowest in 2021 and way below market expectations of 500K against August’s upwardly revised levels of 366K. Private nonfarm payrolls in the U.S. (only private business employees) edged down in September to 317K (the lowest in 5-months), from August’s upwardly revised 332K, and far below market expectations of 455K. The change in total nonfarm payroll (NFP) employment for July was revised up by +38K to 1091K, and the change for August was revised up by +131K to 366K. With these revisions, employment in July and August combined is +169K higher than previously reported.
The U.S. unemployment rate further declined by -0.4% to 4.8% in September, the lowest level since Mar’20 and below market expectations of 5.1%. The nominal number of the civilian labor force decreased by around -183K in September to 161354K. The number of unemployed persons fell by -710K to 7674K, the lowest since Mar’20, but still considerably higher than Feb’20 (pre-COVID) levels of 5717K. The number of employed persons increased by +526K to 153680K in September against pre-COVID (Feb’20) levels of 158735K and 155000K goal post for Fed’s ‘substantial further’ progress to start the much-awaited QE tapering process(expected). The labor force participation rate little changed at 61.6% in September and has remained within a narrow range of 61.4% to 61.7% since June’20. The participation rate is 1.7% lower than in Feb’20 pre-COVID levels.
In September, notable job gains occurred in leisure & hospitality, professional & business services, retail trade, transportation, and warehousing, while employment in public education declined over the month. So far this year, monthly job growth has averaged 561K. Nonfarm employment has increased by 17.4M since a recent trough in April 2020 but is down by 5.0M, or 3.3%, from its pre-COVID (Feb’20) levels.
In September, employment decreased by 144K in local government education and by 17K in state government education. Employment changed little in private education (-19K). Most back-to-school hiring typically occurs in September. BLS said hiring in September was lower than usual, resulting in a decline after seasonal adjustment. Recent employment changes are challenging to interpret, as pandemic-related staffing fluctuations in public and private education have distorted the normal seasonal hiring and layoff patterns. Since February 2020, employment is down by 310K in local government education, by 194K in state government education, and by 172K in private education.
The U.S. Average Hourly Earnings (AHE) grew by +4.6% in September from downwardly revised +4.0% in August, in line with the market expectations of +4.6% gain (y/y). On a sequential (m/m) basis, the AHE grew by +0.6% in September, higher than the market expectations of +0.4%; prior growth: +0.4% (August). The growth in AHE was also accompanied by higher AWH (Average Weekly Hours) at 34.8 against 34.6 sequentially and an estimate of 34.7. Average hourly earnings for all employees on private nonfarm payrolls rose in September, following large increases in the prior 5-months.
In September, the average hourly earnings of private-sector production and nonsupervisory employees rose by $0.14 to $26.15. The data for recent months suggest that the rising demand for labor associated with the recovery from the pandemic may have put upward pressure on wages. However, because average hourly earnings vary widely across industries, the large employment fluctuations since February 2020 complicate the analysis of recent trends in average hourly earnings.
Highlights of Sep’21 NFP payroll report:
· Apart from headline NFP job addition in establishment survey, all other components of the NFP report were quite strong
· Household survey data shows the number of employed persons continue to increase by +526K against average NFP job additions of around +561Kin 2021 (till September)
· Positive revision for NFP job additions by around +169K in July and August than previously reported
· September NFP job addition headline figure was affected by seasonal factors including bad weather, Delta disruptions, and mandatory vaccination mandate for Federal as-well-as state and private employees; till now almost 68M eligible Americans have not taken any vaccine (down from 80M a few months ago) due to vaccine hesitancy, which is affecting employment
· The headline unemployment rate declined below 5% mainly for a sudden reduction in labor force count
· Delayed school reopenings relative to normal seasonal factors due to bad weather and child vaccination issues affected employment in government schools
· Signs of wage inflation amid upbeat wage growth
· Private payroll growth on track despite terrible NFP headline
· Headline unemployment rate falls to 4.8% from Dec’20 levels 6.7% and pre-COVID (Feb’20) levels 3.5%
· There are a lack of eligible workers amid compulsory vaccination mandate and also skill/education/qualification/experience issues
· September jobs report, which is based on surveys conducted shortly before the peak of the Delta surge, maybe the worst of the NFP job addition slowdown
· The consumer-facing/contact-sensitive service industry continues to be under stress on Delta surge, some COVID restrictions and vaccination issues
· Some reduction in the labor force may have lingered amid COVID related issues
· Most of the 200K reduction of the labor force in September were women amid child care issues as schools have not reopened fully for children and kids in physical mode
· The nominal labor force is still down almost 3M from pre-COVID (Feb’20) levels and around 65% of those are women
· School staffing fluctuations related to seasonal factors may be adjusted/revised in the October NFP report
· Labor force participation was largely flat in September despite the end of PUA; the number of people who would like to work but are not looking for jobs actively was around 6M, while 1.6M Americans remained unable to take a job because of COVID-related constraints
· Job openings remained at record highs for several months with millions of Americans still out of the workforce. The high demand for workers has pushed wage growth higher, with average hourly earnings rising by +0.6% in September alone. Employees also worked more hours in September as businesses struggling to fill positions leaned heavily on existing staff, resulting in average income growth of +1.20% sequentially in September
· Companies are expecting that PUA cuts and schools reopening would lead to a surge in labor supply in the fall; thus they are in a wait & watch mode as rising labor costs would eventually affect the bottom line
· September NFP survey date was around 12th September and at that time, Delta infections were plateauing, affecting NFP headline
· The NFP job addition data from household surveys (60K households) and establishment surveys (144K firms/employers and 697K individual workers/employees) diverged further in Sep’21 as household data includes self-employed jobs, which reported strong gains, while establishment data include only employers under company/government payroll (businesses, governments, and nonprofits), which reported marginal gains, dragged down by a sharp decline in government jobs, mainly in educational institutions for various seasonal and COVID related factors including mandatory vaccine mandate
· In 2021 (till September) establishment survey shows cumulative NFP job gains around 5050K against 4030K by the household survey
· Over the past three months (July-September), as per the household survey, around 2258K additional people were working, either in regular jobs or self-employed against 1651K cumulative job additions under the establishment survey
· The difference/divergence between household and establishment survey data mainly for self-employed persons
· Various COVID emergency Federal unemployment benefits under the CARES Act, PUA (for the self-employed/uninsured), PEUC, PAC, and MEUC expired on 4th September. But due to backlog, certain eligible Americans are still receiving such extended PUA payments, hindering a return to work, subdued labor force participation and employment
· Subdued labor force participation is also a result of early retirement amid the stock/crypto craze (PUA boosted retail participation/Robinhood traders), COVID related restrictions (schools/daycare reopening; mandatory vaccinations etc) apart from minimum wage issues (people may be more comfortable in stock market/crypto trading from home rather than working low paid jobs in leisure & hospitality sector)
Fed goes by household survey data, which produce nominal employed/unemployed persons and unemployment rate. The divergence between household and establishment survey data is mainly because of the exclusion of self-employed persons in the establishment survey, accounting only for payroll jobs by private companies and the government. In September, despite the terrible headline for NFP job addition data due to distortion in government jobs (mainly schools) under establishment survey, overall employment gains were around +526K.
Even if the headline unemployment rate edged up to around 5% in October due to possible higher labor force participation, it will translate 50-60% progress from Dec’20 levels to Feb’20 levels, which will pave the way for QE tapering from Dec’20 or Jan’21 (as per Powell’s September FOMC post-meeting comments).
The nominal number of employed persons was around 153680K in Sep’21 against Dec’20 levels 149830K and Feb’20 levels 158732K; i.e. there was an employment gap of 8902K between Feb’20 (pre-COVID) and Dec’20 (Fed’s comparison standard for QE tapering) and till Sep’21, almost 3850K has been fulfilled; i.e. progress of around 43% and by Nov-Dec’21, this should be around 50-60%, in line with Fed’s substantial progress standard, paving the way for QE tapering, most probably from Jan’21.
Fed will watch/asses the October as well as November NFP report and may only announce the QE tapering timeline in the Dec’21 meeting with fresh dot-plots, indicating two rate hikes in H2CY22 against the earlier one to stay ahead of the inflation curve. Price stability is now more important than maximum employment mandate for Fed to keep U.S. borrowing costs (bond yields) lower, everything being equal. Fed will also take into consideration significant vaccine hesitancy among a large section of American workers, which is affecting the goal of maximum employment in an inclusive based manner, but Fed’s policy will not fix this vaccine hesitancy issues.
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